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January 2005:
HIGH-RISK SERIES:
An Update:
GAO-05-207:
GAO Highlights:
Highlights of GAO-05-207, a report to Congress on GAOís High-Risk
Series:
Why Area Is High Risk:
GAOís audits and evaluations identify federal programs and operations
that, in some cases, are high risk due to their greater vulnerabilities
to fraud, waste, abuse, and mismanagement. Increasingly, GAO also is
identifying high-risk areas to focus on the need for broad-based
transformations to address major economy, efficiency, or effectiveness
challenges. Since 1990, GAO has periodically reported on government
operations that it has designated as high risk. In this 2005 update for
the 109th Congress, GAO presents the status of high-risk areas
identified in 2003 and new high-risk areas warranting attention by the
Congress and the administration. Lasting solutions to high-risk
problems offer the potential to save billions of dollars, dramatically
improve service to the American public, strengthen public confidence
and trust in the performance and accountability of our national
government, and ensure the ability of government to deliver on its
promises.
What GAO Found:
In January 2003, GAO identified 25 high-risk areas; in July 2003, a
26th high-risk area was added to the list. Since then, progress has
been made in all areas, although the nature and significance of
progress varies by area. Federal departments and agencies, as well as
the Congress, have shown a continuing commitment to addressing high-
risk challenges and have taken various steps to help correct several of
the problemsí root causes. GAO has determined that sufficient progress
has been made to remove the high-risk designation from three areas:
student financial aid programs, FAA financial management, and Forest
Service financial management. Also, four areas related to IRS have been
consolidated into two areas.
This year, GAO is designating four new high-risk areas. The first new
area is establishing appropriate and effective information-sharing
mechanisms to improve homeland security. Federal policy creates
specific requirements for information-sharing efforts, including the
development of processes and procedures for collaboration between
federal, state, and local governments and the private sector. This area
has received increased attention but the federal government still faces
formidable challenges sharing information among stakeholders in an
appropriate and timely manner to minimize risk.
The second and third new areas are, respectively, DODís approach to
business transformation and its personnel security clearance program.
GAO has reported on inefficiencies and inadequate transparency and
accountability across DODís major business areas, resulting in billions
of dollars of wasted resources. Senior leaders have shown commitment
to business transformation through individual initiatives in
acquisition reform, business modernization, and financial management,
among others, but little tangible evidence of actual improvement has
been seen in DODís business operations to date. DOD needs to take
stronger steps to achieve and sustain business reform on a
departmentwide basis. Further, delays by DOD in completing background
investigations and adjudications can affect the entire government
because DOD performs this function for hundreds of thousands of
industry personnel from 22 federal agencies, as well as its own service
members, federal civilian employees, and industry personnel. OPM is to
assume DODís personnel security investigative function, but this
change alone will not reduce the shortages of investigative personnel.
The fourth area is management of interagency contracting. Interagency
contracts can leverage the governmentís buying power and provide a
simplified and expedited method of procurement. But several factors
can pose risks, including the rapid growth of dollars involved combined
with the limited expertise of some of agencies in using these contracts
and recent problems related to their management. Various improvement
efforts have been initiated to address this area, but improved policies
and processes, and their effective implementation, are needed to ensure
that interagency contracting achieves its full potential in the most
effective and efficient manner.
What Remains to Be Done:
This report contains GAOís views on what remains to be done for each
high-risk area to bring about lasting solutions. Perseverance by the
administration in implementing GAOís recommended solutions and
continued oversight and action by the Congress are both essential.
www.gao.gov/cgi-bin/getrpt?GAO-05-207.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact George H. Stalcup at
(202) 512-9490 or stalcupg@gao.gov.
GAO's 2005 High-Risk List:
2005 High-Risk Areas: Addressing Challenges In Broad-based
Transformations:
* Strategic Human Capital Management[A].
* U.S. Postal Service Transformation Efforts and Long-Term Outlook[A].
* Managing Federal Real Property[A].
* Protecting the Federal Government's Information Systems and the
Nation's Critical Infrastructures.
* Implementing and Transforming the Department of Homeland Security.
* Establishing Appropriate And Effective Information-Sharing
Mechanisms to Improve Homeland Security.
* DOD Approach to Business Transformation[A].
* DOD Business Systems Modernization.
* DOD Personnel Security Clearance Program.
* DOD Support Infrastructure Management.
* DOD Financial Management.
* DOD Supply Chain Management (formerly Inventory Management).
* DOD Weapon Systems Acquisition.
2005 High-Risk Areas: Managing Federal Contracting More Effectively:
* DOD Contract Management.
* DOE Contract Management.
* NASA Contract Management.
* Management of Interagency Contracting.
2005 High-Risk Areas: Assessing the Efficiency and Effectiveness of Tax
Law Administration.
* Enforcement of Tax Laws[A, B].
* IRS Business Systems Modernization[C].
2005 High-Risk Areas: Modernizing and Safeguarding Insurance and
Benefit Programs:
* Modernizing Federal Disability Programs[A].
* Pension Benefit Guaranty Corporation Single- Employer Insurance
Program[A].
* Medicare Program[A].
* Medicaid Program[A].
* HUD Single-Family Mortgage Insurance and Rental Housing Assistance
Programs.
2005 High-Risk Areas: Other:
* FAA Air Traffic Control Modernization.
Source: GAO.
[A] Legislation is likely to be necessary, as a supplement to actions
by the executive branch, in order to effectively address this high-risk
area.
[B] Two high-risk areas--Collection of Unpaid Taxes and Earned Income
Credit Noncompliance--have been consolidated to make this area.
[C] The IRS Financial Management high-risk area has been incorporated
into this high-risk area.
[End of table]
Contents:
Transmittal Letter:
Historical Perspective:
High-Risk Designations Removed:
Student Financial Aid Programs:
FAA Financial Management:
Forest Service Financial Management:
New High-Risk Areas:
Establishing Appropriate and Effective Information-Sharing Mechanisms
to Improve Homeland Security:
DOD Approach to Business Transformation:
DOD Personnel Security Clearance Program:
Management of Interagency Contracting:
Emerging Areas:
Progress Being Made in Other High-Risk Areas:
High-Risk Areas Consolidated:
Collection of Unpaid Taxes and Earned Income Credit Noncompliance:
IRS Business Systems Modernization and IRS Financial Management:
Highlights for Each High-Risk Area:
Transmittal Letter:
January 2005:
The President of the Senate:
The Speaker of the House of Representatives:
Since 1990, GAO has periodically reported on government operations that
it identifies as "high risk." This effort, which is supported by the
Senate Committee on Homeland Security and Governmental Affairs and the
House Committee on Government Reform, has brought a much needed focus
to problems that are impeding effective government and costing the
government billions of dollars each year. To help, GAO has made
hundreds of recommendations to improve these high-risk operations.
Moreover, GAO's focus on high-risk problems contributed to the Congress
enacting a series of governmentwide reforms to address critical human
capital challenges, strengthen financial management, improve
information technology practices, and instill a more results-oriented
government.
GAO's high-risk status reports are provided at the start of each new
Congress. This update should help the Congress and executive branch in
carrying out their responsibilities while improving the government's
performance and enhancing its accountability for the benefit of the
American people. It summarizes progress made in correcting high-risk
problems, actions under way, and further actions that GAO believes are
needed. In this update, GAO has determined that sufficient progress has
been made to remove the high-risk designation from three areas, and has
designated four new areas as high risk. In addition, several prior
high-risk areas have been consolidated or modified.
GAO's high-risk program has increasingly focused on those major
programs and operations that need urgent attention and transformation
in order to ensure that our national government functions in the most
economical, efficient, and effective manner possible. Further, the Bush
Administration has looked to GAO's program in shaping governmentwide
initiatives such as the President's Management Agenda, which has at its
base many of the areas GAO had previously designated as high risk. As
in prior GAO high-risk update reports, federal programs and operations
are also emphasized when they are at high risk because of their greater
vulnerabilities to fraud, waste, abuse, and mismanagement. In addition,
some of these high-risk agencies, programs, or policies are in need of
transformation, and several will require action by both the executive
branch and the Congress. Our objective for the high-risk list is to
bring "light" to these areas as well as "heat" to prompt needed
"actions."
Copies of this update are being sent to the President, the
congressional leadership, other Members of the Congress, the Director
of the Office of Management and Budget, and the heads of major
departments and agencies.
Signed by:
David M. Walker:
Comptroller General of the United States:
[End of section]
Historical Perspective:
In 1990, GAO began a program to report on government operations that we
identified as "high risk." Since then, generally coinciding with the
start of each new Congress, we have periodically reported on the status
of progress to address high-risk areas and updated our high-risk list.
Our most recent high-risk update was in January 2003.[Footnote 1]
Overall, our high-risk program has served to identify and help resolve
serious weaknesses in areas that involve substantial resources and
provide critical services to the public. Since our program began, the
government has taken high-risk problems seriously and has made long-
needed progress toward correcting them. In some cases, progress has
been sufficient for us to remove the high-risk designation. The overall
changes to our high-risk list over the past 15 years are shown in table
1. Areas removed from the high-risk list over that same period are
shown in table 2. The areas on GAO's 2005 high-risk list and the year
each was designated as high risk are shown in table 3.
Table 1: Overall Changes to GAO's High-Risk List, 1990 to 2005:
Changes, 1990-2005: Original high-risk list in 1990;
Number of areas: 14.
Changes, 1990-2005: High-risk areas added since 1990;
Number of areas: 29.
Changes, 1990-2005: High-risk areas removed since 1990;
Number of areas: 16.
Changes, 1990-2005: High-risk areas consolidated since 1990;
Number of areas: 2.
Changes, 1990-2005: High-risk list in 2005;
Number of areas: 25.
Source: GAO.
[End of table]
Table 2: Areas Removed from GAO's High-Risk List, 1990 to 2005:
Area: Federal Transit Administration Grant Management;
Year removed: 1995;
Year designated high risk: 1990.
Area: Pension Benefit Guaranty Corporation;
Year removed: 1995;
Year designated high risk: 1990.
Area: Resolution Trust Corporation;
Year removed: 1995;
Year designated high risk: 1990.
Area: State Department Management of Overseas Real Property;
Year removed: 1995;
Year designated high risk: 1990.
Area: Bank Insurance Fund;
Year removed: 1995;
Year designated high risk: 1991.
Area: Customs Service Financial Management;
Year removed: 1999;
Year designated high risk: 1991.
Area: Farm Loan Programs;
Year removed: 2001;
Year designated high risk: 1990.
Area: Superfund Program;
Year removed: 2001;
Year designated high risk: 1990.
Area: National Weather Service Modernization;
Year removed: 2001;
Year designated high risk: 1995.
Area: The 2000 Census;
Year removed: 2001;
Year designated high risk: 1997.
Area: The Year 2000 Computing Challenge;
Year removed: 2001;
Year designated high risk: 1997.
Area: Asset Forfeiture Programs;
Year removed: 2003;
Year designated high risk: 1990.
Area: Supplemental Security Income;
Year removed: 2003;
Year designated high risk: 1997.
Area: Student Financial Aid Programs;
Year removed: 2005;
Year designated high risk: 1990.
Area: Federal Aviation Administration Financial Management;
Year removed: 2005;
Year designated high risk: 1999.
Area: Forest Service Financial Management;
Year removed: 2005;
Year designated high risk: 1999.
Source: GAO.
[End of table]
Table 3: The Year that Areas on GAO's 2005 High-Risk List Were
Designated as High Risk:
Area: Medicare Program;
Year designated high risk: 1990.
Area: DOD Supply Chain Management;
Year designated high risk: 1990[A].
Area: DOD Weapon Systems Acquisition;
Year designated high risk: 1990.
Area: DOE Contract Management;
Year designated high risk: 1990.
Area: NASA Contract Management;
Year designated high risk: 1990.
Area: Enforcement of Tax Laws;
Year designated high risk: 1990[B].
Area: DOD Contract Management;
Year designated high risk: 1992.
Area: HUD Single-Family Mortgage Insurance and Rental Housing
Assistance Programs;
Year designated high risk: 1994.
Area: DOD Financial Management;
Year designated high risk: 1995.
Area: DOD Business Systems Modernization;
Year designated high risk: 1995.
Area: IRS Business Systems Modernization;
Year designated high risk: 1995[C].
Area: FAA Air Traffic Control Modernization;
Year designated high risk: 1995.
Area: Protecting the Federal Government's Information Systems and the
Nation's Critical Infrastructures;
Year designated high risk: 1997.
Area: DOD Support Infrastructure Management;
Year designated high risk: 1997.
Area: Strategic Human Capital Management;
Year designated high risk: 2001.
Area: U.S. Postal Service Transformation Efforts and Long-Term Outlook;
Year designated high risk: 2001.
Area: Medicaid Program;
Year designated high risk: 2003.
Area: Managing Federal Real Property;
Year designated high risk: 2003.
Area: Modernizing Federal Disability Programs;
Year designated high risk: 2003.
Area: Implementing and Transforming the Department of Homeland
Security;
Year designated high risk: 2003.
Area: Pension Benefit Guaranty Corporation Single-Employer Insurance
Program;
Year designated high risk: 2003.
Area: Establishing Appropriate and Effective Information-Sharing
Mechanisms to Improve Homeland Security;
Year designated high risk: 2005.
Area: DOD Approach to Business Transformation;
Year designated high risk: 2005.
Area: DOD Personnel Security Clearance Program;
Year designated high risk: 2005.
Area: Management of Interagency Contracting;
Year designated high risk: 2005.
Source: GAO.
[A] This area was formerly entitled DOD Inventory Management.
[B] One of the two high-risk areas that were consolidated to make this
area--Collection of Unpaid Taxes--was designated high risk in 1990. The
other area--Earned Income Credit Noncompliance--was designated high
risk in 1995.
[C] IRS Financial Management has been incorporated into the IRS
Business Systems Modernization high-risk area. Both areas were
initially designated as high risk in 1995.
[End of table]
Eight of the 16 areas removed from the list over the years were among
the 14 programs and operations we determined to be high risk at the
outset of our efforts to monitor such programs. These results
demonstrate that the sustained attention and commitment by the Congress
and agencies to resolve serious, long-standing high-risk problems have
paid off, as root causes of the government's exposure for half of our
original high-risk list have been successfully addressed.
Historically, high-risk areas have been so designated because of
traditional vulnerabilities related to their greater susceptibility to
fraud, waste, abuse, and mismanagement. As our high-risk program has
evolved, we have increasingly used the high-risk designation to draw
attention to areas associated with broad-based transformations needed
to achieve greater economy, efficiency, effectiveness, accountability,
and sustainability of selected key government programs and operations.
Perseverance by the executive branch is needed in implementing our
recommended solutions for addressing these high-risk areas. Continued
congressional oversight and, in some cases, additional legislative
action will also be key to achieving progress, particularly in
addressing challenges in broad-based transformations.
To determine which federal government programs and functions should be
designated high risk, we used our guidance document, Determining
Performance and Accountability Challenges and High Risks.[Footnote 2]
In determining whether a government program or operation is high risk,
we consider whether it involves national significance or a management
function that is key to performance and accountability. We also
consider whether the risk is:
* an inherent problem, such as may arise when the nature of a program
creates susceptibility to fraud, waste, and abuse, or:
* a systemic problem, such as may arise when the programmatic;
management support; or financial systems, policies, and procedures
established by an agency to carry out a program are ineffective,
creating a material weakness.
Further, we consider qualitative factors, such as whether the risk:
* involves public health or safety, service delivery, national
security, national defense, economic growth, or privacy or citizens'
rights, or:
* could result in significantly impaired service; program failure;
injury or loss of life; or significantly reduced economy, efficiency,
or effectiveness.
Before making a high-risk designation, we also consider the corrective
measures an agency may have planned or under way to resolve a material
control weakness and the status and effectiveness of these actions.
When legislative and agency actions, including those in response to our
recommendations, result in significant and sustainable progress toward
resolving a high-risk problem, we remove the high-risk designation. Key
determinants here include a demonstrated strong commitment to and top
leadership support for addressing problems, the capacity to do so, a
corrective action plan, and demonstrated progress in implementing
corrective measures.
The next section discusses how we applied our criteria in determining
what areas to remove and to add since our last update in January 2003.
[End of section]
High-Risk Designations Removed:
For this 2005 high-risk update, we determined that three high-risk
areas warranted removal from the list. They are the Department of
Education's (Education) Student Financial Aid Programs, Federal
Aviation Administration (FAA) Financial Management, and the Department
of Agriculture's (USDA) Forest Service Financial Management. We will,
however, continue to monitor these programs, as appropriate, to ensure
that the improvements we have noted are sustained.
Student Financial Aid Programs:
In 1990, we designated student financial aid programs as high risk.
Since then, in previous high-risk updates, we reported various
problems, including poor financial management and weak internal
controls, fragmented and inefficient information systems, and
inadequate attention to program integrity as evidenced by high default
rates and the numbers of ineligible students participating in the
programs. In 1998, the Congress established Education's Office of
Federal Student Aid (FSA) as the government's first performance-based
organization, thus giving it greater flexibility to better address
long-standing management weaknesses with student aid programs. In 2001,
Education created a team of senior managers dedicated to addressing key
financial and management problems throughout the agency, and in 2002,
the Secretary of Education made removal from GAO's high-risk list a
specific goal and listed it as a performance measure in Education's
strategic plan. We reported in 2003 that Education had made important
progress, but that it was too early to determine whether improvements
would be sustained and that additional steps needed to be taken in
several areas.
Since 2003, as discussed below, Education has sustained improvements in
the financial management of student financial aid programs and taken
additional steps to address our concerns about systems integration,
reporting on defaulted loans, and human capital management.
Furthermore, the agency has met many of our criteria for removing the
high-risk designation. Education has demonstrated a strong commitment
to addressing risks; developed and implemented corrective action plans;
and, through its annual planning and reporting processes, monitored the
effectiveness and sustainability of its corrective measures. Thus,
while FSA needs to continue its progress and take additional steps to
fully address some of our recommendations, we are removing the high-
risk designation from student financial aid programs.
FSA has sustained improvements to address its financial management and
internal control weaknesses. FSA received an unqualified, or "clean,"
opinion on its financial statements for fiscal years 2002, 2003, and
2004. In addition, the auditors indicated progress in addressing
previously identified internal control weaknesses, with no material
weaknesses[Footnote 3] reported in FSA's fiscal year 2003 and 2004
audits. However, the auditors reported that FSA should continue to
further strengthen these internal controls, which are related to the
calculation and reporting of the loan liability activity and subsidy
estimates as well as its information systems controls. FSA has also
established processes to address several previously reported internal
control weaknesses that made FSA vulnerable to improper payments in its
grant and loan programs. For example, FSA has taken steps to better
ensure that grants are not awarded to ineligible students and has
implemented a process to identify and investigate schools for possible
fraudulent activities or eligibility-related violations. Further, FSA
addressed concerns we raised about students who were underreporting
family income, by working with the Office of Management and Budget and
the Department of the Treasury to draft legislation that would permit
use of tax information to verify income reported on student aid
applications.
FSA has taken further actions toward integrating its many disparate
information systems. FSA has developed an integration strategy that
focuses on achieving a seamless information exchange environment
whereby users--students, educational institutions, and lenders--would
benefit from simplified access to the agency's financial aid processes
and more consistent and accurate data across its programs. FSA also has
made progress toward establishing an enterprise architecture for
guiding its systems integration efforts and has begun three efforts for
reengineering its information-processing environment, which would
consolidate and integrate most of its systems and move it closer to a
seamless information exchange environment.
FSA also included action steps for achieving default management goals
in its annual plan and has taken steps to help reduce the student loan
default rate. In 2003, FSA created a work group that identified over 60
default prevention and management initiatives and established a new
organizational unit to focus on mitigating and reducing the risk of
loss to the taxpayer from student obligations. FSA added information to
its exit-counseling guide to help increase borrowers' awareness of the
benefits of repaying their loans through electronic debiting accounts
and prepayment options. In 2003, FSA reported a cohort default rate of
5.4 percent for 2001, and defaulted loans as a percentage of total
outstanding loans declined from 9.4 percent in 2001 to 7.6 percent in
2003.
FSA is taking steps to address its human capital challenges. It
developed a comprehensive human capital strategy that includes many of
the practices of leading organizations and has addressed many of the
issues we previously raised. For example, FSA identified challenges
that it will likely face in coming years, such as likely retirements,
and discussed recognized weaknesses, such as the need to develop the
skills of staff and maintain the focus of the agency's leadership on
human capital issues. FSA has also prepared a succession plan that
addresses some of our concerns about the pending retirement of senior
employees in key positions across the agency. Additionally, FSA has
established several approaches to support staff development by revising
its Skills Catalog, which should enable staff to independently plan
their professional development; introducing online learning tools;
offering a wide variety of internal courses; and providing funds for
external courses.
FAA Financial Management:
We first designated FAA financial management as high risk in 1999
because the agency lacked accountability for billions of dollars in
assets and expenditures due to serious weaknesses in its financial
reporting, property, and cost accounting systems. These problems
continued through fiscal year 2001, when FAA's financial management
system required 850 adjustments totaling $41 billion in order to
prepare FAA's annual financial statements. In addition, at that time,
FAA could not accurately and routinely account for property totaling a
reported $11.7 billion, and lacked the cost information necessary for
decision making as well as to adequately account for its activities and
major projects, such as the air traffic control modernization program.
Also, while FAA received an unqualified audit opinion on its fiscal
year 2001 financial statements, the auditor's report cited a material
internal control weakness related to FAA's lack of accountability for
its property and several other internal control weaknesses related to
financial management issues.
At the time of our January 2003 high-risk report, FAA had made
significant progress in addressing its financial management weaknesses,
most importantly through ongoing efforts to develop a new financial
management system called Delphi, including an integrated property
accounting system, as well as initiatives to develop a new cost
accounting system. However, these new systems were still under
development and not yet operational. Therefore, it had yet to be seen
whether the new systems would resolve the long-standing financial
management issues that had resulted in our designation of FAA financial
management as high risk. As a result, we retained FAA financial
management as a high-risk area, while noting that significant progress
was being made.
FAA management has continued to make progress since our January 2003
high-risk report. Subsequent auditors' reports on FAA's financial
statements for fiscal years 2002 and 2003 were unqualified, but
continued to cite internal control weaknesses, although less severe
than in prior years, related to FAA's then existing financial
management systems. In fiscal year 2004, FAA implemented its new Delphi
general ledger system, including an integrated property accounting
system. FAA management was able to prepare financial statements for the
fiscal year ended September 30, 2004, using these new systems, and
FAA's auditors gave FAA an unqualified opinion on these financial
statements. While the auditors reported several internal control
weaknesses related to the implementation of the new financial
management systems, none of these were considered to be material
weaknesses, and FAA management, in responding to the auditor's report,
indicated their full commitment to addressing these issues.
While the cost accounting system is still under development, progress
has been made. The cost accounting interface with Delphi was completed
in fiscal year 2004, and the labor distribution interface is expected
to be completed in fiscal year 2005. For the first time, some cost
accounting data, while not available on a monthly basis, was available
shortly after the fiscal year end for the 12 months ended September 30,
2004. FAA management has demonstrated its commitment to the full
implementation of this system, devoting significant planning and
resources to its completion and the monitoring of its implementation
progress.
While it is important that FAA management continue to place a high
priority on the cost system and, more importantly, ultimately to use
cost information routinely in FAA decision making, FAA's progress in
improving financial management overall since our January 2003 high-risk
update has been sufficient for us to remove the high-risk designation
for FAA financial management.
Forest Service Financial Management:
We first designated USDA's Forest Service financial management as high
risk in 1999 because the agency lacked accountability over billions of
dollars in its two major assets--fund balance with the Department of
the Treasury (Treasury) and property, plant, and equipment. Since the
Forest Service is a major component of USDA, the lack of accountability
over these two major assets contributed to disclaimers of opinions on
USDA's consolidated financial statements. In addition, the Forest
Service continued to have material weaknesses in its accounting and
reporting of accounts receivable and accounts payable. This precluded
the agency from knowing costs it had incurred and amounts owed to
others throughout the year. These problems were further exacerbated by
problems with the Forest Service's partial implementation of its new
financial accounting system. This system was unable to produce certain
critical budgetary and accounting reports that track obligations,
assets, liabilities, revenues, and costs. Thus, these financial
reporting weaknesses hampered management's ability to effectively
manage operations, monitor revenue and spending levels, and make
informed decisions about future funding needs.
The Forest Service's long-standing financial management deficiencies
were also evident in the repeated negative opinions on its financial
statements, including adverse opinions in fiscal years 1991, 1992, and
1995. Due to the severity of its accounting and reporting deficiencies,
the Forest Service did not prepare financial statements for fiscal year
1996, but chose instead to focus on trying to resolve these problems.
However, the Forest Service's pervasive material internal control
weaknesses continued to plague the agency. In our 2001 high-risk
update, we reported that the USDA Office of Inspector General (IG) was
unable to determine the accuracy of the Forest Service's reported $3.1
billion in net property, plant, and equipment, which represented 51
percent of the agency's assets. We also reported that the IG was unable
to verify fund balances with Treasury totaling $2.6 billion because the
reconciliation of agency records with Treasury records had not been
completed. Because of the severity of these and other deficiencies, the
IG disclaimed from issuing opinions on the Forest Service's financial
statements for fiscal years 1997 through 2001. In addition, we noted
that the Forest Service's autonomous field structure hampered efforts
to correct these accounting and financial reporting deficiencies. We
also reported that the Forest Service had implemented its new
accounting system agencywide. However, the system depended on and
received data from feeder systems that were poorly documented,
operationally complex, deficient in appropriate control processes, and
costly to maintain.
In our 2003 high-risk report, while we highlighted that the Forest
Service continued to have long-standing material control weaknesses,
including weaknesses in its fund balance with Treasury and in property,
plant, and equipment, we reported that the Forest Service had made
progress toward achieving accountability by receiving its first
unqualified opinion on its fiscal year 2002 financial statements.
Although the Forest Service had reached an important milestone, it had
not yet proved it could sustain this outcome, and had not reached the
end goal of routinely producing timely, accurate, and useful financial
information. As a result, we retained Forest Service financial
management as a high-risk area.
In the past 2 years, the Forest Service has made additional progress,
especially with respect to addressing several long-standing material
internal control deficiencies. Based on our criteria for removing a
high-risk designation, which includes a demonstrated strong commitment,
corrective action plan, and progress in addressing deficiencies, we
believe the Forest Service's overall improvement in financial
management since our January 2003 high-risk update has been sufficient
for us to remove Forest Service financial management from the high-risk
list at this time. The Forest Service has resolved material
deficiencies related to its fund balance with Treasury and in property,
plant, and equipment, thus increasing accountability over its billions
of dollars in assets, and USDA and the Forest Service received
unqualified opinions on their fiscal year 2004 financial statements.
This does not mean that the Forest Service has no remaining challenges.
For example, while we recognized its clean opinion for fiscal year 2002
in our last update, subsequently, in fiscal year 2003, these financial
statements had to be restated to correct material errors. The Forest
Service also received a clean opinion for fiscal year 2003, but these
financial statements had to be restated in fiscal year 2004 to again
correct material misstatements. Frequent restatements to correct errors
can undermine public trust and confidence in both the entity and all
responsible parties. Further, the Forest Service continues to have
material internal control weaknesses related to financial reporting and
information technology security, and its financial management systems
do not yet substantially comply with the Federal Financial Management
Improvement Act of 1996.
However, the Forest Service has demonstrated a strong commitment to
efforts under way or planned, that, if effectively implemented, should
help to resolve many of its remaining financial management problems and
move it toward sustainable financial management business processes.
These efforts are designed to address internal control and
noncompliance issues identified in audit reports, as well as
organizational issues. For example, during fiscal year 2004, the Forest
Service began reengineering and consolidating its finance, accounting,
and budget processes. We believe these efforts, if implemented
effectively, will provide stronger financial management, sustain
positive audit results, and ensure compliance with federal financial
reporting standards. Yet, it is important that USDA and Forest Service
officials continue to place a high priority on addressing its remaining
financial management problems, and we will continue to monitor their
progress.
[End of section]
New High-Risk Areas:
GAO's use of the high-risk designation to draw attention to the
challenges associated with the economy, efficiency, and effectiveness
of government programs and operations in need of broad-based
transformation has led to important progress. We will also continue to
identify high-risk areas based on the more traditional focus on fraud,
waste, abuse, and mismanagement. Our focus will continue to be on
identifying the root causes behind vulnerabilities, as well as actions
needed on the part of the agencies involved and, if appropriate, the
Congress.
For 2005, we have designated the following four new areas as high risk:
Establishing Appropriate and Effective Information-Sharing Mechanisms
to Improve Homeland Security, Department of Defense (DOD) Approach to
Business Transformation, DOD Personnel Security Clearance Program, and
Management of Interagency Contracting.
Establishing Appropriate and Effective Information-Sharing Mechanisms
to Improve Homeland Security:
Information is a crucial tool in fighting terrorism, and the timely
dissemination of that information to the appropriate government agency
is absolutely critical to maintaining the security of our nation. The
ability to share security-related information can unify the efforts of
federal, state, and local government agencies, as well as the private
sector as appropriate, in preventing or minimizing terrorist attacks.
The 9/11 terrorist attacks heightened the need for comprehensive
information sharing. Prior to that time, the overall management of
information-sharing activities among government agencies and between
the public and private sectors lacked priority, proper organization,
coordination, and facilitation. As a result, the existing national
mechanisms for collecting threat information, conducting risk analyses,
and disseminating warnings were at an inadequate state of development
for protecting the United States from coordinated terrorist attacks.
Information sharing for securing the homeland is a governmentwide
effort involving multiple federal agencies, including but not limited
to the Office of Management and Budget (OMB); the Departments of
Homeland Security (DHS), Justice, State, and Defense; and the Central
Intelligence Agency. Over the past several years, GAO has identified
potential information-sharing barriers, critical success factors, and
other key management issues that should be considered, including the
processes, procedures, and systems to facilitate information sharing
among and between government entities and the private sector.
Establishing an effective two-way exchange of information to detect,
prevent, and mitigate potential terrorist attacks requires an
extraordinary level of cooperation and perseverance among federal,
state, and local governments and the private sector to establish
timely, effective, and useful communications. Since 1998, GAO has
recommended the development of a comprehensive plan for information
sharing to support critical infrastructure protection efforts. The key
components of this recommendation can be applied to broader homeland
security and intelligence-sharing efforts, including clearly
delineating the roles and responsibilities of federal and nonfederal
entities, defining interim objectives and milestones, setting time
frames for achieving objectives, and establishing performance measures.
In the absence of comprehensive information-sharing plans, many aspects
of homeland security information sharing remain ineffective and
fragmented. Accordingly, we are designating information sharing for
homeland security as a governmentwide high-risk area because this area,
while receiving increased attention, still faces significant
challenges.
Since 2002, legislation,[Footnote 4] various national strategies, and
executive orders have specified actions to improve information sharing
for homeland security.
* The Homeland Security Act of 2002 (P.L. 107-296) included the
following specific mechanisms intended to improve two-way information
sharing:
* The Critical Infrastructure Information Act of 2002 required the
establishment of uniform procedures for the receipt, care, and storage
of critical infrastructure information that is voluntarily submitted to
the federal government. In February 2004, DHS issued an interim rule
for comment.
* The Homeland Security Information Sharing Act required procedures for
facilitating homeland security information sharing and established
authorities to share different types of information, such as grand jury
information; electronic, wire, and oral interception information; and
foreign intelligence information. In July 2003, the President assigned
these functions to the Secretary of Homeland Security,[Footnote 5] but
no deadline was established for developing information-sharing
procedures.
* In 2002 and 2003, the National Strategy for Homeland Security and its
implementing strategies, the National Strategy to Secure Cyberspace and
the National Strategy for the Physical Protection of Critical
Infrastructures and Key Assets, also highlighted federal actions to
promote two-way information sharing mechanisms.[Footnote 6]
* In September 2003, Homeland Security Presidential Directive (HSPD) 6
called for the establishment of a terrorist screening center to
develop, integrate, and maintain thorough, accurate, and current
information about individuals known or appropriately suspected to be or
to have been engaged in conduct constituting, in preparation for, in
aid of, or related to terrorism.[Footnote 7]
* Issued in December 2003, HSPD 7 required that DHS (1) produce a
national infrastructure protection plan summarizing initiatives for
sharing information, including providing threat warning data to state
and local governments and the private sector; and (2) establish
appropriate systems, mechanisms, and procedures to share homeland
security information with other federal departments and agencies, state
and local governments, and the private sector in a timely
manner.[Footnote 8]
* In August 2004, the President issued executive orders:
* strengthening terrorism information sharing by (1) requiring
establishment of common standards for the sharing of terrorism
information within and among the intelligence and counterterrorism
communities and appropriate authorities of state and local governments
and (2) establishing a council chaired by OMB to plan for and oversee
the establishment of automated terrorism information sharing among
appropriate agencies[Footnote 9] and:
* establishing a National Counterterrorism Center to serve as the
primary organization in the federal government for analyzing and
integrating intelligence possessed or acquired by the United States
pertaining to terrorism and counterterrorism.[Footnote 10]
* In December 2004, the Intelligence Reform and Terrorism Prevention
Act of 2004 (P.L. 108-458) required the establishment of (1) an
information-sharing environment (ISE) as a means of facilitating the
exchange of terrorism information among appropriate federal, state,
local, and tribal entities, and the private sector; and (2) an
information-sharing council to support the President and the ISE
program manager with advice on developing policies, procedures,
guidelines, roles, and standards necessary to implement and maintain
the ISE.
In addition, federal agencies have taken steps to expand the mechanisms
available for sharing information with and among key stakeholders.
* The Federal Bureau of Investigation (FBI) has acted to enhance its
information sharing with state and local law enforcement officials,
such as providing guidance and additional staffing. It has more than
doubled the number of its Joint Terrorism Taskforces (JTTF), from 35
prior to the September 11 attacks to 84 as of July 2004, and state and
local law enforcement officials' participation on these task forces has
also increased. The FBI has at least one JTTF in each of its 56 field
locations and plans to expand that number to 100 JTTFs. The FBI also
circulates declassified intelligence information through a weekly
bulletin and provides threat information to state and local law
enforcement officials via various database networks.
* In September 2004, we reported that 9 federal agencies identified 34
major networks supporting homeland security functions--32 operational
and 2 in development. For the networks for which cost estimates were
available, the cost totaled approximately $1 billion per year for
fiscal years 2003 and 2004. Among the networks identified, DHS's
Homeland Secure Data Network appears to be a significant initiative for
future sharing of classified homeland security information among
civilian agencies and DOD.
The 9/11 Commission recognized that information sharing must be "guided
by a set of practical policy guidelines that simultaneously empower and
constrain officials, telling them clearly what is and is not
permitted."[Footnote 11] While the wide range of executive and
legislative branch actions is encouraging, significant challenges
remain in developing the required detailed policies, procedures, and
plans for sharing homeland security-related information. For example,
DHS had not developed a plan detailing how it will manage its
information-sharing responsibilities and relationships, including
consideration of appropriate incentives for nonfederal entities to
increase information sharing with the federal government, expand
participation, and perform other specific tasks such as protecting
critical infrastructure.[Footnote 12] HSPD 7 required that DHS develop
such a plan by December 2004, however the plan remains under
development.
The absence of such plans is exacerbated by the lack of established
processes and procedures for disseminating homeland security
information to the private sector. For example, without clear processes
and procedures for rapidly sharing appropriate information, the ability
of private sector entities to effectively design facility security
systems and protocols can be impeded. In addition, the lack of sharing
procedures can also limit the federal government's accurate assessment
of nonfederal facilities' vulnerability to terrorist attacks.
Detailed plans are essential. For example, DHS has developed an initial
version of an enterprise architecture to assist its efforts to
integrate and share information among and between federal agencies and
other entities; version 1.0 of its architecture does not, however,
include many of the 34 networks that we identified as supporting
homeland security information sharing.
Improving the standardization and consolidation of data can also
promote better sharing. For example, in 2003 we found that goals,
objectives, roles, responsibilities, and mechanisms for information
sharing had not been consistently defined by the 9 federal agencies
that maintain 12 key terrorist and criminal watch list systems. As a
result, efforts to standardize and consolidate appropriate watch list
data would be impeded by the existence of overlapping sets of data,
inconsistent agency policies and procedures for the sharing of those
data, and technical incompatibilities among the various watch list
information systems. In addition, 2004 reports from the inspectors
general at DHS and the Department of Justice highlight the challenges
and slow pace of integrating and sharing information between
fingerprint databases.[Footnote 13]
We have made numerous recommendations related to information sharing,
particularly as they relate to fulfilling federal critical
infrastructure protection responsibilities.[Footnote 14] For example,
we have reported on the practices of organizations that successfully
share sensitive or time-critical information, including establishing
trust relationships, developing information-sharing standards and
protocols, establishing secure communications mechanisms, and
disseminating sensitive information appropriately. Federal agencies
have concurred with our recommendations that they develop appropriate
strategies to address the many potential barriers to information
sharing. However, many federal efforts remain in the planning or early
implementation stages.
A great deal of work remains to effectively implement the many actions
called for to improve homeland security information sharing, including
establishing clear goals, objectives, and expectations for the many
participants in information-sharing efforts; and consolidating,
standardizing, and enhancing federal structures, policies, and
capabilities for the analysis and dissemination of information.
DOD Approach to Business Transformation:
DOD spends billions of dollars each year to sustain key business
operations that support our forces, including systems and processes
related to acquisition and contract management, financial management,
supply chain management, business systems modernization, and support
infrastructure management--all of which appear individually on GAO's
high-risk list. Recent and ongoing military operations in Afghanistan
and Iraq and new homeland defense missions have led to newer and higher
demands on our forces in a time of growing fiscal challenges for our
nation. In an effort to better manage DOD's resources, the Secretary of
Defense has appropriately placed a high priority on transforming force
capabilities and key business processes.
For years, GAO has reported on inefficiencies and the lack of adequate
transparency and appropriate accountability across DOD's major business
areas, resulting in billions of dollars of wasted resources annually.
Although the Secretary of Defense and senior leaders have shown
commitment to business transformation, as evidenced by individual key
initiatives related to acquisition reform, business modernization, and
financial management, among others, little tangible evidence of actual
improvement has been seen in DOD's business operations to date.
Improvements have generally been limited to specific business process
areas, such as DOD's purchase card program, and have resulted in the
incorporation of many key elements of reform, such as increased
management oversight and monitoring and results-oriented performance
measures. However, DOD has not taken the steps it needs to take to
achieve and sustain business reform on a broad, strategic,
departmentwide and integrated basis. Among other things, it has not
established clear and specific management responsibility,
accountability, and control over overall business transformation-
related activities and applicable resources. In addition, DOD has not
developed a clear strategic and integrated plan for business
transformation with specific goals, measures, and accountability
mechanisms to monitor progress, or a well-defined blueprint, commonly
called an enterprise architecture, to guide and constrain
implementation of such a plan. For these reasons, GAO, for the first
time, is designating DOD's lack of an integrated strategic planning
approach to business transformation as high risk.
DOD's current and historical approach to business transformation has
not proven effective in achieving meaningful and sustainable progress
in a timely manner. As a result, change is necessary in order to
expedite the effort and increase the likelihood of success. For DOD to
successfully transform its business operations, it will need a
comprehensive and integrated business transformation plan; people with
needed skills, knowledge, experience, responsibility, and authority to
implement the plan; an effective process and related tools; and
results-oriented performance measures that link institutional, unit,
and individual performance goals and expectations to promote
accountability for results. Over the last 3 years, GAO has made several
recommendations that, if implemented effectively, could help DOD move
forward in establishing the means to successfully address the
challenges it faces in transforming its business operations. For
example, GAO believes that DOD needs a full-time chief management
officer (CMO) position, created through legislation, with
responsibility and authority for DOD's overall business transformation
efforts. This is a "good government" matter that should be addressed in
a professional and nonpartisan manner. The CMO must be a person with
significant authority and experience who would report directly to the
Secretary of Defense. Given the nature and complexity of the overall
business transformation effort, and the need for sustained attention
over a significant period of time, this position should be a term
appointment (e.g., 7 years) and the person should be subject to a
performance contract. DOD has agreed with many of our recommendations
and launched efforts intended to implement many of them, but progress
to date has been slow.
DOD Personnel Security Clearance Program:
Delays in completing hundreds of thousands of background investigations
and adjudications (a review of investigative information to determine
eligibility for a security clearance) have led us to add the DOD
personnel security clearance program to our 2005 high-risk list.
Personnel security clearances allow individuals to gain access to
classified information that, in some cases, could reasonably be
expected to cause exceptionally grave damage to national defense or
foreign relations through unauthorized disclosure. Worldwide
deployments, contact with sensitive equipment, and other security
requirements have resulted in DOD having approximately 2 million active
clearances. Problems with DOD's personnel security clearance process
can have repercussions throughout the government because DOD conducts
personnel security investigations and adjudications for industry
personnel from 22 other federal agencies, in addition to performing
such functions for its own service members, federal civilian employees,
and industry personnel. While GAO's work on the clearance process has
focused on DOD, clearance delays in other federal agencies suggest that
similar impediments and their effects may extend beyond DOD.
Since at least the 1990s, GAO has documented problems with DOD's
personnel security clearance process, particularly problems related to
backlogs and the resulting delays in determining clearance eligibility.
Since fiscal year 2000, DOD has declared its personnel security
clearance investigations program to be a systemic weakness--a weakness
that affects more than one DOD component and may jeopardize the
department's operations--under the Federal Managers' Financial
Integrity Act of 1982. An October 2002 House Committee on Government
Reform report also recommended including DOD's adjudicative process as
a material weakness. As of September 30, 2003 (the most recent data
available), DOD could not estimate the full size of its backlog, but we
identified over 350,000 cases exceeding established time frames for
determining eligibility.
The negative effects of delays in determining security clearance
eligibility are serious and vary depending on whether the clearance is
being renewed or granted to an individual for the first time. Delays in
renewing previously issued clearances can lead to heightened risk of
national security breaches because the longer individuals hold a
clearance, the more likely they are to be working with critical
information and systems. Delays in issuing initial clearances can
result in millions of dollars of additional costs to the federal
government, longer periods of time needed to complete national
security-related contracts, lost-opportunity costs if prospective
employees decide to work elsewhere rather than wait to get a clearance,
and diminishing quality of the work because industrial contractors may
be performing government contracts with personnel who have the
necessary security clearances but are not the most experienced and
best-qualified personnel for the positions involved.
DOD has taken steps--such as hiring more adjudicators and authorizing
overtime for adjudicative staff--to address the backlog, but a
significant shortage of trained federal and private-sector
investigative personnel presents a major obstacle to timely completion
of cases. Other impediments to eliminating the backlog include the
absence of an integrated, comprehensive management plan for addressing
a wide variety of problems identified by GAO and others. In addition to
matching adjudicative staff to workloads and working with the Office of
Personnel Management (OPM) to develop an overall management plan, DOD
needs to develop and use new methods for forecasting clearance needs
and monitoring backlogs, eliminate unnecessary limitations on
reciprocity (the acceptance of a clearance and access granted by
another department, agency, or military service), determine the
feasibility of implementing initiatives that could decrease the backlog
and delays, and provide better oversight for all aspects of its
personnel security clearance process.
The National Defense Authorization Act for Fiscal Year 2004 authorized
the transfer of DOD's personnel security investigative function and
over 1,800 investigative employees to OPM. The transfer is scheduled to
take place in February 2005. While the transfer would eliminate DOD's
responsibility for conducting the investigations, it would not
eliminate the shortage of trained investigative personnel needed to
address the backlog. Although DOD would retain the responsibility for
adjudicating clearances, OPM would be accountable for ensuring the
investigations are completed in a timely manner.
Management of Interagency Contracting:
In recent years, federal agencies have been making a major shift in the
way they procure many goods and services. Rather than spending a great
deal of time and resources contracting for goods and services
themselves, they are making greater use of existing contracts already
awarded by other agencies. These contracts are designed to leverage the
government's aggregate buying power and provide a much-needed
simplified method for procuring commonly used goods and services. Thus,
their popularity is gaining quickly. The General Services
Administration (GSA) alone, for example, has seen a nearly tenfold
increase in interagency contract sales since 1992, pushing the total
sales mark up to $32 billion (see fig. 1). Other agencies, such as the
Department of the Treasury and the National Institutes of Health, also
sponsor interagency contracts.
Figure 1: Multiple Award Schedule Sales, Fiscal Years 1992 through
2004:
[See PDF for image]
Note: Dollars amounts are then-year dollars.
[End of figure]
These contract vehicles offer the benefits of improved efficiency and
timeliness; however, they need to be effectively managed. If not
properly managed, a number of factors can make these interagency
contract vehicles high risk in certain circumstances: (1) they are
attracting rapid growth of taxpayer dollars; (2) they are being
administered and used by some agencies that have limited expertise with
this contracting method; and (3) they contribute to a much more complex
environment in which accountability has not always been clearly
established. Use of these contracts, therefore, demands a higher degree
of business acumen and flexibility on the part of the federal
acquisition workforce than in the past. This risk is widely recognized,
and the Congress and executive branch agencies have taken several steps
to address it. However, the challenges associated with these contracts,
recent problems related to their management, and the need to ensure
that the government effectively implements measures to bolster
oversight and control so that it is well positioned to realize the
value of these contracts warrants designation of interagency
contracting as a new high-risk area.
Interagency contracts are awarded under various authorities and can
take many forms. Typically, they are used to provide agencies with
commonly used goods and services, such as office supplies or
information technology services. Agencies that award and administer
interagency contracts usually charge a fee to support their operations.
These types of contracts have allowed customer agencies to meet the
demands for goods and services at a time when they face growing
workloads, declines in the acquisition workforce, and the need for new
skill sets.
Our work and that of some agency inspectors general has revealed
instances of improper use of interagency contracts. For example, we
recently reviewed contracts and task orders awarded by DOD and found
some task orders under the GSA schedules that did not satisfy legal
requirements for competition because the work was not within the scope
of the underlying contracts.[Footnote 15] Similarly, the inspector
general for the Department of the Interior found that task orders for
interrogators and other intelligence services in Iraq were improperly
awarded under a GSA schedule contract for information technology
services.[Footnote 16] More broadly, the GSA inspector general
conducted a comprehensive review of the contracting activities of GSA's
Federal Technology Service (FTS), an entity that provides contracting
services for agencies across the government, and reported that millions
of dollars in fiscal year 2003 awards did not comply with laws and
regulations.[Footnote 17] Administration officials have acknowledged
that the management of interagency contracting needs to be improved.
Interagency contracting is being used more with regard to purchases of
services, which have increased significantly over the past several
years and now represent over half of federal contract spending.
Agencies also are buying more sophisticated or complex services,
particularly in the areas of information technology and professional
and management support. In many cases, interagency contracts provide
agencies with easy access to these services, but purchases of services
require different approaches in describing requirements, obtaining
competition, and overseeing contractor performance than purchases of
goods. In this regard, we and others have reported on the failure to
follow prescribed procedures designed to ensure fair prices when using
schedule contracts to acquire services. At DOD, the largest customer
for interagency contracts, we found that competition requirements were
waived for a significant percentage of supply schedule orders we
reviewed, frequently based on an expressed preference to retain the
services of incumbent contractors. DOD concurred with our
recommendations to develop guidance for the conditions under which
waivers of competition may be used, require documentation to support
waivers, and establish approval authority based on the value of the
orders.[Footnote 18]
There are several causes of the deficiencies we and others have found
with the use of interagency contracts, including the increasing demands
on the acquisition workforce, insufficient training, and in some cases
inadequate guidance. Two additional factors are worth noting. First,
the fee-for-service arrangement creates an incentive to increase sales
volume in order to support other programs of the agency that awards and
administers an interagency contract. This may lead to an inordinate
focus on meeting customer demands at the expense of complying with
required ordering procedures. Second, it is not always clear where the
responsibility lies for such critical functions as describing
requirements, negotiating terms, and conducting oversight. Several
parties--the requiring agency, the ordering agency, and in some cases
the contractor--are involved with these functions. But, as the number
of parties grows, so too does the need to ensure accountability.
The Congress and the administration have taken several steps to address
the challenges of interagency contracting. In 2003, the Congress sought
to improve contract oversight and execution by enacting the Services
Acquisition Reform Act. The Act created a new chief acquisition officer
position in many agencies and enhanced workforce training and
recruitment. More recently, the Congress responded to the misuse of
interagency contracting by requiring more intensive oversight of
purchases under these contracts. In July 2004, GSA launched "Get It
Right," an oversight and education program, to ensure that its largest
customer, DOD, and other federal agencies properly use GSA's
interagency contracts and its acquisition assistance services. Through
this effort, GSA seeks to demonstrate a strong commitment to customer
agencies' compliance with federal contracting regulations and, among
other things, improve processes to ensure competition, integrity, and
transparency. Additionally, to address workforce issues, OMB, GSA, and
DOD officials have said they are developing new skills assessments,
setting standards for the acquisition workforce, and coordinating
training programs aimed at improving the capacity of the federal
acquisition workforce to properly handle the growing and more complex
workload of service acquisitions.
These recent actions are positive steps toward improving management of
interagency contracting, but, as with other areas, some of these
actions are in their early stages and others are still under
development. In addition, it is too early to tell whether all of the
corrective actions will be effectively implemented, although a recent
limited review by the GSA Inspector General found some improvement at
FTS from enhanced management controls. Our work on major management
challenges indicates that specific and targeted approaches are also
needed to address interagency contracting risks across the government.
Ensuring the proper use of interagency contracts must be viewed as a
shared responsibility of all parties involved. But this requires that
specific responsibilities be more clearly defined. In particular, to
facilitate effective purchasing through interagency contracts, and to
help ensure the best value of goods and services, agencies must clarify
roles and responsibilities and adopt clear, consistent, and enforceable
policies and processes that balance the need for customer service with
the requirements of contract regulations. Internal controls and
appropriate performance measures help ensure that policies and
processes are implemented and have the desired outcomes.
In addition, to be successful, efforts to improve the contracting
function must be linked to agency strategic plans. As with other
governmentwide high-risk areas, such as human capital and information
security, effectively addressing interagency contract management
challenges will require agency management to commit the necessary time,
attention, and resources, as well as enhanced executive branch and
congressional oversight. Making these investments has the potential to
improve the government's ability to acquire high-quality goods and
services in an efficient and effective manner, resulting in reduced
costs, improved service delivery, and strengthened public trust.
[End of section]
Emerging Areas:
In addition to specific areas that GAO has designated as high risk,
there are other important broad-based challenges facing our government
that are serious and merit continuing close attention. One area of
increasing concern involves the need for the completion of
comprehensive national threat and risk assessments in a variety of
areas. For example, emerging requirements from the changing security
environment, coupled with increasingly limited fiscal resources across
the federal government, emphasize the need for agencies to adopt a
sound approach to establishing realistic goals, evaluating and setting
priorities, and making difficult resource decisions. GAO has advocated
a comprehensive threat and/or risk management approach as a framework
for decision making that fully links strategic goals to plans and
budgets, assesses values and risks of various courses of actions as a
tool for setting priorities and allocating resources, and provides for
the use of performance measures to assess outcomes. Most prominently,
two federal agencies with significant national security
responsibilities--DHS and DOD--are still in the beginning stages of
adopting a risk-based strategic framework for making important resource
decisions involving billions of dollars annually. This lack of a
strategic framework for investment decisions is one of the reasons that
implementing and transforming DHS, and DOD's approach to business
transformation, have been designated as high-risk areas. At the same
time, this threat/risk assessment concept can be applied to a broad
range of existing federal government programs, functions, and
activities.
The relatively new DHS, with an annual budget of over $40 billion, has
not completed risk assessments mandated by the Homeland Security Act of
2002 to set priorities to help focus its resources where most needed.
In performing its duties to protect the nation's critical
infrastructure, DHS has not made clear the link between risk assessment
and resource allocation, for example, what criteria it initially used
to select assets of national importance and the basic strategy it uses
to determine which assets warrant additional protective measures, and
by how much these measures could reduce the risk to the nation. GAO has
reviewed the work of several of DHS's component agencies that have
taken some initial steps towards risk management, but much remains to
be done. DHS's Immigration and Customs Enforcement (ICE), as a first
step toward developing budget requests and workforce plans for fiscal
year 2007 and beyond, has had its Office of Investigations field
offices conduct baseline threat assessments to help identify risks.
However, performance measures to assess how well a particular threat
has been addressed were not used for workforce planning in ICE's fiscal
year 2006 budget request. DHS's Customs and Border Protection (CBP) has
taken steps to address the terrorism risks posed by oceangoing cargo
containers. However, CBP has not performed a comprehensive set of
assessments vital for determining the level of risk for oceangoing
cargo containers and the types of responses necessary to mitigate that
risk. The need to use a risk management approach has been a recurring
theme in our previous work in transportation security. We reported in
2003 that DHS's Transportation and Security Administration (TSA)
planned to adopt a risk management approach. To date, including in our
most recent work on general aviation security, we have found that TSA
has not fully integrated this approach, which includes assessments of
threat, vulnerability, and criticality, to help it prioritize its
efforts. As a result, we have recommended that TSA continue its efforts
to integrate a risk management approach into its processes.
DOD, with a budget of over $400 billion a year, exclusive of
supplemental funding, is in the process of transforming its force
capabilities and business processes. GAO has reported on limitations in
DOD's strategic planning and budgeting, including the use of overly
optimistic assumptions in estimating funding needs, often resulting in
a mismatch between programs and budgets. In its strategic plan--the
September 2001 Quadrennial Defense Review--DOD outlined a new risk
management framework consisting of four dimensions of risk--force
management, operational, future challenges, and institutional--to use
in considering trade-offs among defense objectives and resource
constraints. According to DOD, these risk areas are to form the basis
for DOD's annual performance goals. They will be used to track
performance results and will be linked to planning and resource
decisions. As of December 2004, DOD was still in the process of
implementing this approach departmentwide. It also remains unclear how
DOD will use this approach to measure progress in achieving business
and force transformation.
We believe that instilling a disciplined approach to identifying and
managing risk has broad applicability across a wide range of federal
programs, operations, and functions across the federal government. This
will be a continuing focus of our work in the future. More generally,
we will also continue to monitor other management challenges identified
through our work, including those discussed in our January 2003
Performance and Accountability Series: Major Management Challenges and
Program Risks (GAO-03-95 through GAO-03-118). While not high risk at
this time, these challenges warrant continued attention. For example,
at the U.S. Census Bureau, a number of operational and managerial
challenges loom large as the Bureau approaches its biggest enumeration
challenge yet, the 2010 Census. The Census Bureau will undertake an
important census test and make critical 2010 Census operational and
design decisions in the coming months--and we will continue to closely
monitor these challenges to assist the Congress in its oversight and
the Bureau in its decision making.
[End of section]
Progress Being Made in Other High-Risk Areas:
For other areas that remain on our 2005 high-risk list, there has been
important but varying levels of progress, although not yet enough
progress to remove these areas from the list. Top administration
officials have expressed their commitment to maintaining momentum in
seeing that high-risk areas receive adequate attention and oversight.
Since our 2003 high-risk report, the Office of Management and Budget
(OMB) has worked closely with a number of agencies that have high-risk
issues, in many cases establishing action plans and milestones for
agencies to complete needed actions to address areas that we have
designated as high risk. Such a concerted effort by agencies and
ongoing attention by OMB are critical; our experience over the past 15
years has shown that perseverance is required to fully resolve high-
risk areas. The Congress, too, will continue to play an important role
through its oversight and, where appropriate, through legislative
action targeted at the problems and designed to address high-risk
areas.
Examples of progress in other programs or operations that were
previously designated as high risk are discussed below and in the
highlights pages that follow this report section.
* Recognizing that federal agencies must transform their organizations
to meet the new challenges of the 21st century and that their most
important asset in this transformation is their people, GAO first added
human capital management as a governmentwide high-risk issue in January
2001 to help focus attention and resources on the need for human
capital reform. Since then, the Congress and the agencies have made
more progress in revising and redesigning human capital policies,
processes, and systems than in the past quarter century. The Congress
called on agencies to do a better and faster job of hiring the right
people with the right skills to meet their critical missions, such as
protecting the homeland, and gave the agencies new flexibilities to
meet this challenge. The Congress also granted agencies, such as DOD
and DHS, unprecedented flexibility to redesign their human capital
systems, including designing new classification and compensation
systems, which could serve as models for governmentwide change.
However, effectively designing and implementing any resulting human
capital systems will be of critical importance not just for these
agencies, but for overall civil service reform. As part of the
President's Management Agenda, the administration also made strategic
human capital management one of its top five priorities and established
a system for holding agencies accountable for achieving this change.
Some agencies have begun to assess their future workforce needs and
implement available flexibilities to meet those needs. As a result of
the ongoing significant changes in how the federal workforce is
managed, there is general recognition that there should be a framework
to guide human capital reform built on a set of beliefs that entail
fundamental principles and boundaries that include criteria and
processes that establish checks and limitations when agencies seek and
implement their authorities.
* The Postal Service (the Service) has made significant progress in
improving its financial situation and implementing transformation
initiatives to improve its financial viability since its transformation
efforts and long-term outlook was designated as high risk in 2001.
Several of its key achievements in the last 2 years include debt
reduction of $9.3 billion, net income of $7 billion, productivity gains
of 4.2 percent, the elimination of accumulated deficits, and reductions
of about 45,000 in career employees. In addition, postal pension reform
legislation was enacted to address a projected overfunding of the
Service's pension obligation. The Congress also made progress in
considering postal reform legislation, which, although not yet enacted,
was approved by House and Senate oversight committees. However, key
challenges remain, including generating revenues to offset declines in
First-Class Mail volume, which generates revenues covering most of the
Service's institutional costs; addressing large financial liabilities
and obligations; achieving cost savings and productivity improvements,
in part by restructuring its infrastructure and workforce; and
addressing human capital challenges, such as succession planning and
credible performance-based compensation systems. Further, postal
reform remains a challenge that will require enactment of legislation
by the Congress and leadership by the Service to effectively carry out
its transformation.
* Since January 2003, the administration has taken several key steps to
address long-standing problems in managing federal real property.
First, in an effort to provide a governmentwide focus on federal real
property issues, the President added the Federal Asset Management
Initiative to the President's Management Agenda and signed Executive
Order 13327 in February 2004. Under the order, agencies are to
designate a senior real property officer to, among other things,
identify and categorize owned and leased real property managed by the
agency and develop agency asset management plans. Agencies such as DOD
and the Department of Veterans Affairs (VA) have taken other actions--
DOD is preparing for a round of base realignments and closures in 2005,
and in May 2004, VA announced a wide range of asset realignment
decisions. These and other efforts are positive steps, but it is too
early to judge whether the administration's focus on this area will
have a lasting impact. The underlying conditions and related obstacles
that led to GAO's high-risk designation continue to exist. Remaining
obstacles include competing stakeholder interests in real property
decisions, various legal and budget-related disincentives to optimal,
businesslike, real property decisions, and the need for better capital
planning among agencies.
* Since GAO designated modernizing federal disability programs as a
high-risk area in 2003, the Social Security Administration (SSA) and VA
have made some progress toward improving their disability programs. A
key initiative involves SSA's proposal to improve the timeliness and
accuracy of disability decisions and to foster return to work at all
stages of the decision-making process. In addition, the Congress
established a commission to study the appropriateness of veterans'
benefits. Moreover, SSA and VA have both made some gains in timeliness
in their disability claims decisions. While these actions have yielded
some progress, SSA's and VA's disability programs still face
significant challenges. For example, despite the slowdown in workforce
growth nationwide, increased employment opportunities for persons with
disabilities have been afforded by advances in medicine and technology
and the growing expectation that people with disabilities can and do
want to work. Nevertheless, federal disability programs remain grounded
in outmoded concepts that equate medical conditions with work
incapacity. In addressing these challenges, GAO believes that SSA and
VA should take the lead in examining the fundamental causes of program
problems and seek both the management and legislative solutions needed
to transform their programs so that they are in line with the current
state of science, medicine, technology, and labor market conditions. At
the same time, these agencies should continue to develop and implement
strategies for improving the accuracy, timeliness, and consistency of
disability decision making.
* The Department of Health and Human Services and its Centers for
Medicare & Medicaid Services (CMS) have made some progress to improve
the fiscal integrity and oversight of the Medicaid program, which was
designated high risk in 2003. For example, CMS has strengthened
oversight of state financing schemes that have inappropriately boosted
the federal share of Medicaid spending, by centralizing its review
process and conducting targeted financial management reviews of states'
programs. CMS also proposed last year that Medicaid payments to
government facilities be limited to their actual costs--a
recommendation that GAO earlier made to the Congress and that remains
open. The results of these actions will need to be assessed to
determine their effectiveness in improving the program's fiscal
integrity, and more action is needed before the program's high-risk
designation can be removed. For example, CMS did not take action in
response to our recommendations intended to better ensure that state
Medicaid demonstration programs, to expand coverage to certain
populations, do not increase the federal government's costs beyond what
they would have been without the demonstrations, a long-standing
administration policy.
* The Department of Housing and Urban Development (HUD) has
demonstrated commitment to and progress in addressing weaknesses in its
Single-Family Mortgage Insurance and Rental Housing Assistance program
areas. Specifically, HUD has acted to reduce the risk of financial loss
by improving its oversight of lenders and appraisers and by increasing
its use of foreclosure prevention tools. Further, HUD has continued to
implement measures to reduce errors in rental subsidy payments and to
improve the physical condition of HUD-assisted housing. However, HUD
needs to continue strengthening the management and oversight of its
single-family mortgage insurance programs to reduce the risk of
insurance losses and its vulnerability to questionable payments for
property management services. Further, it needs to continue in its
efforts to ensure that rental housing assistance program subsidy
payments are accurate and that subsidy recipients are eligible.
* Since the agency's inception in March 2003, DHS leadership has
provided a foundation to maintain critical operations while undergoing
transformation. DHS has worked to protect the homeland and secure
transportation and borders, funded emergency preparedness improvements
and emerging technologies, assisted law enforcement activities against
suspected terrorists, and issued its first strategic plan. DHS has
taken initial steps to address financial management weaknesses and is
acquiring an integrated financial enterprise solution, recognized the
need for and has begun to institutionalize a strategic management
framework that addresses key information technology disciplines; and
initiated strategic human capital planning efforts and published
proposed regulations for a modern human capital management system.
Concurrently, DHS is initiating corrective actions on a broad array of
programmatic challenges that require sustained effort in areas such as
transportation, cargo, and border security; tracking visitors;
consolidating border security functions; updating outmoded
capabilities in the Coast Guard fleet; and balancing homeland security
with other missions, such as law enforcement and disaster planning. DHS
must now follow through on these initial actions. Furthermore, in
managing its transformation, DHS must overcome a number of significant
challenges that as yet have not been adequately addressed. For example,
annual goals and time frames are vague or missing; the capacity to
achieve them is uncertain; and performance measures and plans to
monitor, assess, and independently evaluate the effectiveness of
corrective measures are not fully developed. Also, progress in forming
effective partnerships with other governmental and private sector
entities remains challenged in several critical areas, such as
improving critical infrastructure protection and emergency
preparedness. Importantly, DHS has also not completed legislatively
mandated comprehensive threat and risk assessments to set priorities
and to focus its limited resources to mitigate the greatest risk. DHS
needs sustained leadership and a commitment to a strategy that
incorporates accountability and oversight to succeed in its multiyear
transformation. Failure to effectively address its management
challenges and program risks could have serious consequences for our
national security.
[End of section]
High-Risk Areas Consolidated:
Collection of Unpaid Taxes and Earned Income Credit Noncompliance:
We have combined our previous Collection of Unpaid Taxes and Earned
Income Credit Noncompliance high-risk areas into an area titled
Enforcement of Tax Laws. Collection of unpaid taxes was included in the
first high-risk series report in 1990, with a focus on the backlog of
uncollected debts owed by taxpayers. In 1995, we added Filing Fraud as
a separate high-risk area, narrowing the focus of that high-risk area
in 2001 to Earned Income Credit Noncompliance because of the
particularly high incidence of fraud and other forms of noncompliance
in that program. We expanded our concern about the Collection of Unpaid
Taxes in our 2001 high-risk report to include not only unpaid taxes
(including tax evasion and unintentional noncompliance) known to the
Internal Revenue Service (IRS), but also the broader enforcement issue
of unpaid taxes that IRS has not detected. We made this change because
of declines in some key IRS collection actions as well as IRS's lack of
information about whether those declines had affected voluntary
compliance. Although the Congress dedicated a specific appropriation
for Earned Income Credit compliance initiatives (both to curb
noncompliance and encourage participation) in fiscal years 1998 through
2003, with the 2004 budget the Congress returned to appropriating a
single amount for IRS to allocate among its various tax law enforcement
efforts.
In recent years, the resources IRS has been able to dedicate to
enforcing the tax laws have declined, while IRS's enforcement workload-
-measured by the number of taxpayer returns filed--has continually
increased. Accordingly, nearly every indicator of IRS's coverage of its
enforcement workload has declined in recent years. Although in some
cases workload coverage has increased, overall IRS's coverage of known
workload is considerably lower than it was just a few years ago.
Although many suspect that these trends have eroded taxpayers'
willingness to voluntarily comply--and survey evidence suggests this
may be true--the cumulative effect of these trends is unknown because
new research into the level of taxpayer compliance is only now being
completed by IRS after a long hiatus. Further, IRS's workload has grown
ever more complex as the tax code has grown more complex. Complexity
creates a fertile ground for those intentionally seeking to evade taxes
and often trips others into inadvertent noncompliance. IRS is
challenged to administer and explain each new provision, thus absorbing
resources that otherwise might be used to enforce the tax laws.
Concurrently, other areas of particularly serious noncompliance have
gained the attention of IRS and the Congress--such as abusive tax
shelters and schemes employed by businesses and wealthy individuals
that often involve complex transactions that may span national
boundaries. Given the broad declines in IRS's enforcement workforce,
IRS's decreased ability to follow up on suspected noncompliance, the
emergence of sophisticated evasion concerns, and the unknown effect of
these trends on voluntary compliance, IRS is challenged on virtually
all fronts in attempting to ensure that taxpayers fulfill their
obligations. IRS's success in overcoming these challenges becomes ever
more important in light of the nation's large and growing fiscal
pressures. Accordingly, we believe the focus of concern on the
enforcement of tax laws is not confined to any one segment of the
taxpaying population or any single tax provision. Our designation of
the enforcement of tax laws as a high-risk area embodies this broad
concern.
IRS Business Systems Modernization and IRS Financial Management:
IRS has long relied on obsolete automated systems for key operational
and financial management functions, and its attempts to modernize these
aging computer systems span several decades. This long history of
continuing delays and design difficulties and their significant impact
on IRS's operations led GAO to designate IRS's systems modernization
activities and its financial management as high-risk areas in 1995.
Since that time, IRS has made progress in improving its financial
management, such as enhancing controls over hard copy tax receipts and
data and budgetary activity, and improving the accuracy of property
records. Additionally, for the past 5 years, IRS has received clean
audit opinions on its annual financial statements and, for the past 3
years, has been able to achieve this within 45 days of the end of the
fiscal year. However, IRS still needs to replace its outdated financial
management systems, which is part of its business systems modernization
program. Accordingly, since the resolution of IRS's remaining most
serious and intractable financial management problems largely depends
upon the success of IRS's business systems modernization efforts, and
since we have continuing concerns related to this program, we are
combining our two previous high-risk areas into one Business Systems
Modernization high-risk area.
[End of section]
Highlights for Each High-Risk Area:
Overall, the government continues to take high-risk problems seriously
and is making long-needed progress toward correcting them. The Congress
has also acted to address several individual high-risk areas through
hearings and legislation. Continued perseverance in addressing high-
risk areas will ultimately yield significant benefits. Lasting
solutions to high-risk problems offer the potential to save billions of
dollars, dramatically improve service to the American public,
strengthen public confidence and trust in the performance and
accountability of our national government, and ensure the ability of
government to deliver on its promises.
We have prepared highlights of each of the 25 high-risk areas on our
updated list, showing (1) why the area is high risk, (2) the actions
that have been taken and that are under way to address the problem
since our last update report as well as the issues that are yet to be
resolved, and (3) what remains to be done to address the risk. These
highlights are presented on the following pages.
Finally, we have compiled lists of GAO products issued since January
2003 related to the major management challenges identified in the 2003
Performance and Accountability Series. These lists, accompanied by
narratives describing the related major management challenges, are
available on our Web site at [Hyperlink, http://www.gao.gov/pas/2005].
HIGH-RISK SERIES:
Strategic Human Capital Management:
GAO Highlights:
For additional information about this high-risk area, contact J.
Christopher Mihm at (202) 512-6806 or mihmj@gao.gov.
Why Area Is High Risk:
In 2001, GAO designated strategic human capital management as a high-
risk area because of the federal government's long-standing lack of a
consistent strategic approach to marshaling, managing, and maintaining
the human capital needed to maximize government performance and ensure
its accountability. The area remains high risk because federal human
capital strategies are still not appropriately constituted to meet
current and emerging challenges or drive the transformations necessary
for agencies to meet these challenges. For example, human capital
considerations are a critical element for the intelligence
organizations and related homeland security organizations that are
undergoing a fundamental transformation in the aftermath of September
11, 2001.
What GAO Found:
The executive branch and the Congress have taken a number of steps to
address the federal government's human capital shortfalls. For example,
in 2001, the President's Management Agenda identified human capital
management as a top priority, and recently the Office of Management and
Budget reported that agencies are making improvements in addressing key
human capital challenges. The Congress also sought to elevate human
capital issues within federal agencies in part by creating the Chief
Human Capital Officer positions and a Council to advise and assist
agency leaders in their human capital efforts. The Congress has
provided several agencies--most notably the Departments of Homeland
Security and Defense--authorities to design and manage their human
capital systems. Effective design and implementation of any resulting
new policies and procedures is of critical importance. The Congress
also recently provided agencies across the executive branch with
additional human capital flexibilities, such as specific hiring
authorities, and the Office of Personnel Management is working with the
agencies to make the government more competitive for top talent by
speeding up the hiring process. In addition, the Congress and the
administration together have reformed the performance management and
compensation systems for senior executives to better link the
institutional, unit, and individual performance and reward systems.
While more progress in addressing human capital challenges has been
made in the last few years than in the previous 25, ample opportunities
exist for agencies to improve their strategic human capital management
to achieve results and respond to current and emerging challenges:
* Leadership: Agencies need sustained leadership to provide the focused
attention essential to completing multiyear transformations.
* Strategic Human Capital Planning: Agencies need effective strategic
workforce plans to identify and focus their human capital investments
on the long-term issues that best contribute to results.
* Acquiring, Developing, and Retaining Talent: Agencies need to
continue to create effective hiring processes and use flexibilities and
incentives to retain critical talent and reshape their workforces.
* Results-Oriented Organizational Cultures: Agencies need to reform
their performance management systems so that pay and awards are linked
to performance and organizational results.
Significant changes in how the federal workforce is managed are under
way, and, consequently, there is general recognition that there needs
to be a framework to guide human capital reform built on a set of
beliefs and boundaries. Beliefs entail the fundamental principles that
should govern all approaches to human capital reform and should not be
altered or waived by agencies seeking human capital authorities.
Boundaries include the criteria and processes that establish the checks
and limitations when agencies seek and implement human capital
authorities.
What Remains to Be Done:
Agencies--working with the Congress and OPM--must assess future
workforce needs, especially in light of long-term fiscal challenges;
determine ways to make maximum use of available authorities to recruit,
hire, develop, and retain key talent to meet their needs; build a
business case to request additional authorities as appropriate; and
reform performance management systems to better link organizational and
individual results. There is also a need to continue to develop a
governmentwide framework for human capital reform that the Congress and
the administration can implement to enhance performance, ensure
accountability, and position the nation for the future.
Related Products:
Strategic Human Capital Management:
Leadership:
Highlights of a GAO and National Commission on the Public Service
Implementation Initiative Forum on Human Capital: Principles, Criteria,
and Processes for Governmentwide Federal Human Capital Reform. GAO-05-
69SP. Washington, D.C.: December 1, 2004.
Intelligence Reform: Human Capital Considerations Critical to 9/11
Commission's Proposed Reforms. GAO-04-1084T. Washington, D.C.:
September 14, 2004.
Human Capital: Building on the Current Momentum to Transform the
Federal Government. GAO-04-976T. Washington, D.C.: July 20, 2004.
Human Capital: Observations on Agencies' Implementation of the Chief
Human Capital Officers Act. GAO-04-800T. Washington, D.C.: May 18,
2004.
Strategic Human Capital Planning:
Human Capital: Key Principles for Effective Strategic Workforce
Planning. GAO-04-39. Washington, D.C.: December 11, 2003.
Human Capital: Succession Planning and Management Is Critical Driver of
Organizational Transformation. GAO-04-127T. Washington, D.C.: October
1, 2003.
Human Capital: Insights for U.S. Agencies from Other Countries'
Succession Planning and Management Initiatives. GAO-03-914.
Washington, D.C.: September 15, 2003.
Acquiring, Developing, and Retaining Talent:
Human Capital: Increasing Agencies' Use of New Hiring Flexibilities.
GAO-04-959T. Washington, D.C.: July 13, 2004.
Human Capital: Additional Collaboration Between OPM and Agencies Is Key
to Improved Federal Hiring. GAO-04-797. Washington, D.C.: June 7, 2004.
Human Capital: A Guide for Assessing Strategic Training and Development
Efforts in the Federal Government. GAO-04-546G. Washington, D.C.: March
2004.
Results-Oriented Organizational Cultures:
Human Capital: Senior Executive Performance Management Can Be
Significantly Strengthened to Achieve Results. GAO-04-614. Washington,
D.C.: May 26, 2004.
Human Capital: Implementing Pay for Performance at Selected Personnel
Demonstration Projects. GAO-04-83. Washington, D.C.: January 23, 2004.
Results-Oriented Cultures: Creating a Clear Linkage between Individual
Performance and Organizational Success. GAO-03-488. Washington, D.C.:
March 14, 2003.
See www.gao.gov for numerous speeches and presentations from the
Comptroller General on human capital challenges in general and as they
apply to specific agencies.
HIGH-RISK SERIES:
U.S. Postal Service Transformation Efforts and Long-Term Outlook:
GAO Highlights:
For additional information about this high-risk area, contact Katherine
Siggerud at (202) 512-2834 or siggerudk@gao.gov.
Why Area Is High Risk:
In April 2001, GAO designated U.S. Postal Service's transformation
efforts and long-term outlook as a high-risk area due to growing risk
that the Service would not be able to continue providing universal
postal service at reasonable rates while remaining self-supporting
through postal revenues. This inclusion on GAO's high-risk list was
intended to focus needed attention on the dilemmas facing the Service
before the situation escalates into a crisis, where the options for
action may be more limited and costly.
The Service has since taken steps to address its problems, and a
presidential commission has reported on the need for far-reaching
changes, including legislative reform. However, reform legislation has
not yet been enacted and the underlying conditions that led to the
high-risk designation continue to exist. Thus, the Service's
transformation efforts and long-term outlook remains on GAO's high-risk
list.
What GAO Found:
The Postal Service's financial viability is at risk because its
business model--which relies on mail volume growth to mitigate rate
increases and cover its costs--is not sustainable in an increasingly
competitive environment, given new and emerging technologies.
Financial, operational, governance, and human capital challenges
threaten the Service's ability to remain self-supporting while
providing affordable, high-quality, and universal postal service. Key
trends that demonstrate the need for reform include declining mail
volume, particularly for First-Class Mail; changes in the mail mix from
high-margin to lower-margin products; changing demographics of the
aging postal workforce; growing competition from private delivery
companies; and projected revenue declines while expenses increase. The
Service continues to face challenges in addressing its large financial
liabilities and obligations (e.g., retiree health obligations), as well
as in restructuring its infrastructure and workforce to become more
efficient and performance based.
First-Class Mail Volume Growth, Fiscal Years 1984 through 2004:
[See PDF for image]
[End of figure]
The Service has recently cut costs and improved productivity, but it is
not clear how the Service will realign its outdated infrastructure and
modernize its workforce policies and practices to achieve additional
long-term productivity gains. The Service has stated that it is using
an evolutionary approach to transform its infrastructure and workforce.
However, little information is available about its plans for this
important effort. Many questions remain as to whether such an
incremental approach will be sufficiently comprehensive, integrated,
and responsive to the increasing pace of change in technology and
competition affecting the Service's core business. Without bold action
and better communication, the Service risks falling short of achieving
the major productivity gains needed to offset rising costs and maintain
quality service and affordable rates. Further, the Congress has not yet
enacted comprehensive postal reform legislation that addresses the
Service's key structural and systemic deficiencies, including its
unfunded obligation for retiree health benefits and the escrow
requirement. Without such action, the accessibility and affordability
of postal services to the American people is at risk, which could
result in dramatic increases in postal rates or a costly taxpayer
bailout.
What Remains to Be Done:
To preserve its mission and financial viability and meet its key
challenges, the Service needs to take bold action and better
communicate how it plans to realign its infrastructure and workforce.
Also, GAO continues to believe that comprehensive postal reform
legislation is needed to clarify the Service's mission and role;
enhance governance, transparency, and accountability; improve
regulation of postal rates and oversight; address long-term financial
obligations; and make human capital reforms.
Related Products:
U.S. Postal Service Transformation Efforts and Long-Term Outlook:
GAO Products:
U.S. Postal Service: USPS Needs to Clearly Communicate How Postal
Services May Be Affected by Its Retail Optimization Plans. GAO-04-803.
Washington, D.C.: July 13, 2004.
Postal Service: Progress in Implementing Supply Chain Management
Initiatives. GAO-04-540. Washington, D.C.: May 17, 2004.
U.S. Postal Service: Key Reasons for Postal Reform. GAO-04-565T.
Washington, D.C.: March 23, 2004.
Need for Comprehensive Postal Reform. GAO-04-455R. Washington, D.C.:
February 6, 2004.
U.S. Postal Service: Key Elements of Comprehensive Postal Reform. GAO-
04-397T. Washington, D.C.: January 28, 2004.
Postal Pension Funding Reform: Issues Related to the Postal Service's
Proposed Use of Pension Savings. GAO-04-238. Washington, D.C.: November
26, 2003.
Postal Pension Funding Reform: Review of Military Service Funding
Proposals. GAO-04-281. Washington, D.C.: November 26, 2003.
U.S. Postal Service: Bold Action Needed to Continue Progress on Postal
Transformation. GAO-04-108T. Washington, D.C.: November 5, 2003.
Federal Real Property: Vacant and Underutilized Properties at GSA, VA,
and USPS. GAO-03-747. Washington, D.C.: August 19, 2003.
U.S. Postal Service: A Primer on Postal Worksharing. GAO-03-927.
Washington, D.C.: July 31, 2003.
U.S. Postal Service: Key Postal Transformation Issues. GAO-03-812T.
Washington, D.C.: May 29, 2003.
Review of the Office of Personnel Management's Analysis of the United
States Postal Service's Funding of Civil Service Retirement System
Costs. GAO-03-448R. Washington, D.C.: January 31, 2003.
Other Products: President's Commission on the United States Postal
Service:
Embracing the Future: Making the Tough Choices to Preserve Universal
Mail Service. http://www.treas.gov/offices/domestic-finance/usps/
Washington, D.C.: July 31, 2003.
For more information on U.S. Postal Service major management
challenges, see http://www.gao.gov/pas/2005/postal.htm.
HIGH-RISK SERIES:
Protecting the Federal Government's Information Systems and the
Nation's Critical Infrastructures:
GAO Highlights:
Why Area Is High Risk:
For additional information about this high-risk area, contact Joel
Willemssen at (202) 512-6253 or willemssenj@gao.gov.
What GAO Found:
With the enactment of the Federal Information Security Management Act
of 2002 (FISMA), the Congress continued its work to improve federal
information security by permanently authorizing and strengthening key
information security requirements. The administration has also made
progress through a number of efforts, including the Office of
Management and Budget's emphasis on information security in the budget
process.
However, significant information security weaknesses at federal
agencies continue to place a broad array of federal operations and
assets at risk of fraud, misuse, and disruption. Although recent
reporting by these agencies showed some improvements, GAO found that
many agencies still have not established information security programs
consistent with FISMA's overall requirement to develop, document, and
implement an agencywide information security program. For example,
agencies are not consistently:
* performing periodic risk assessments,
* developing and maintaining current security plans,
* creating and testing contingency plans, or:
* evaluating and monitoring the effectiveness of security controls.
Federal efforts have been taken to protect our nation's critical public
and private information infrastructures. For example, federal policy
emphasizes the importance of cooperative efforts among state and local
governments and the private sector to protect these information
infrastructures, and has established specific cyber responsibilities
for the Department of Homeland Security and other federal agencies
involved with the private sector in CIP. In addition, the federal
government has led efforts to research and develop (R&D) new
technologies; coordinate responses to incidents, threats, and
vulnerabilities; and develop analysis and warnings capabilities related
to critical information infrastructures. However, this area remains
high risk as the federal government continues to face the critical
challenges shown below.
Challenges to Effective Cyber Critical Infrastructure Protection:
Challenge: Policy and guidance;
Description: Developing a comprehensive and coordinated national plan
to facilitate CIP that clearly delineates the roles and
responsibilities of federal and nonfederal CIP entities, defines
interim objectives and milestones, sets time frames for achieving
objectives, and establishes performance measures.
Challenge: Trusted relationships;
Description: Developing productive relationships within the federal
government and between the federal government and state and local
governments and the private sector.
Challenge: Analysis and warning capabilities;
Description: Improving the federal government's capabilities to analyze
incident, threat, and vulnerability information obtained from numerous
sources and share appropriate, timely, and useful warnings and other
information concerning both cyber and physical threats to federal and
nonfederal entities.
Challenge: Information sharing incentives; Description: Providing
appropriate incentives for nonfederal entities to increase information
sharing with the federal government and enhance other CIP efforts.
Source: GAO.
[End of table]
What Remains to Be Done:
Federal agencies and our nation's critical infrastructures--such as
power distribution, water supply, telecommunications, national
defense, and emergency services--rely extensively on computerized
information systems and electronic data to carry out their missions.
The security of these systems and data is essential to preventing data
tampering, disruptions in critical operations, fraud, and inappropriate
disclosure of sensitive information. Protecting federal computer
systems and the systems that support critical infrastructures--referred
to as cyber critical infrastructure protection, or cyber CIP--is a
continuing concern. Federal information security has been on GAO's list
of high-risk areas since 1997; in 2003, GAO expanded this high-risk
area to include cyber CIP. The continued risks to information systems
include the escalating threat of computer security incidents, the ease
of obtaining and using hacking tools, the steady advance in the
sophistication and effectiveness of attack technology, and the
emergence of new and more destructive attacks.
Related Products:
Protecting the Federal Government's Information Systems and the
Nation's Critical Infrastructures:
Critical Infrastructure Protection: Improving Information Sharing with
Infrastructure Sectors. GAO-04-780. Washington, D.C.: July 9, 2004.
Information Security: Agencies Need to Implement Consistent Processes
in Authorizing Systems for Operation. GAO-04-376. Washington, D.C.:
June 28, 2004.
Information Security: Continued Action Needed to Improve Software Patch
Management. GAO-04-706. Washington, D.C.: June 2, 2004.
Information Security: Information System Controls at the Federal
Deposit Insurance Corporation. GAO-04-630. Washington, D.C.: May 28,
2004.
Technology Assessment: Cybersecurity for Critical Infrastructure
Protection. GAO-04-321. Washington, D.C.: May 28, 2004.
Information Security: Continued Efforts Needed to Sustain Progress in
Implementing Statutory Requirements. GAO-04-483T. Washington, D.C.:
March 16, 2004.
Critical Infrastructure Protection: Challenges and Efforts to Secure
Control Systems. GAO-04-354. Washington, D.C.: March 15, 2004.
Information Security: Technologies to Secure Federal Systems. GAO-04-
467. Washington, D.C.: March 9, 2004.
Information Security: Further Efforts Needed to Address Serious
Weaknesses at USDA. GAO-04-154. Washington, D.C.: January 30, 2004.
Information Security: Improvements Needed in Treasury's Security
Management Program. GAO-04-77. Washington, D.C.: November 14, 2003.
Information Security: Computer Controls over Key Treasury Internet
Payment System. GAO-03-837. Washington, D.C.: July 30, 2003.
FDIC Information Security: Progress Made but Existing Weaknesses Place
Data at Risk. GAO-03-630. Washington, D.C.: June 18, 2003.
Information Security: Progress Made, but Weaknesses at the Internal
Revenue Service Continue to Pose Risks. GAO-03-44. Washington, D.C.:
May 30, 2003.
Information Security: Progress Made, but Challenges Remain to Protect
Federal Systems and the Nation's Critical Infrastructures. GAO-03-564T.
Washington, D.C.: April 8, 2003.
Critical Infrastructure Protection: Efforts of the Financial Services
Sector to Address Cyber Threats. GAO-03-173. Washington, D.C.: January
30, 2003.
HIGH-RISK SERIES:
Managing Federal Real Property:
GAO Highlights:
For additional information about this high-risk area, contact Mark
Goldstein at (202) 512-2834 or goldsteinm@gao.gov.
Why Area Is High Risk:
In January 2003, GAO designated federal real property as a high-risk
area due to long-standing problems with excess and underutilized
property, deteriorating facilities, unreliable real property data, and
costly space challenges. Federal agencies were also facing many
challenges in protecting their facilities due to the threat of
terrorism.
To date, the underlying conditions that led to the designation
continue, and more remains to be done to address these problems and the
obstacles that prevent agencies from solving them. As a result, this
area remains high risk.
What GAO Found:
The federal real property portfolio is vast and diverse--over 30
agencies control hundreds of thousands of real property assets
worldwide, including facilities and land worth hundreds of billions of
dollars. Unfortunately, many of these assets are no longer effectively
aligned with, or responsive to, agencies' changing missions. Further,
many assets are in an alarming state of deterioration; agencies have
estimated restoration and repair needs to be in the tens of billions of
dollars. Compounding these problems are the lack of reliable
governmentwide data for strategic asset management; a heavy reliance on
costly leasing, instead of ownership, to meet new needs; and the cost
and challenge of protecting these assets against terrorism.
In February 2004, the President added the Federal Asset Management
Initiative to the President's Management Agenda and signed Executive
Order 13327. The order requires senior real property officers at all
executive branch departments and agencies to, among other things,
prioritize actions needed to improve the operational and financial
management of the agency's real property inventory. A new Federal Real
Property Council at the Office of Management and Budget (OMB) has
developed guiding principles for real property asset management and is
also developing performance measures, a real property inventory
database, and an agency asset management planning process. In addition
to these reform efforts, agencies such as the Departments of Defense
(DOD) and Veterans Affairs (VA) have made progress in addressing long-
standing federal real property problems. For example, DOD is preparing
for a round of base realignment and closures in 2005. Also, in May
2004, VA announced a wide range of asset realignment decisions.
These and other efforts are positive steps, but it is too early to
judge whether the administration's focus on this area will have a
lasting impact. The underlying conditions and related obstacles that
led to GAO's high-risk designation continue to exist. Remaining
obstacles include competing stakeholder interests in real property
decisions; various legal and budget-related disincentives to optimal,
businesslike, real property decisions; and the need for better capital
planning among agencies.
Examples of Vacant GSA, VA, and USPS Facilities:
[See PDF for image]
[End of figure]
What Remains to Be Done:
Since January 2003, some important efforts to address the problems have
been initiated by the administration and executive agencies, including
a Presidential Executive Order on real property reform and OMB's
development of guiding principles for real property asset management.
The executive order is clearly a positive step. However, it has not
been fully implemented, and GAO continues to believe that there is a
need for a comprehensive, integrated transformation strategy for real
property. In addition, further actions are necessary to address the
underlying problems and related obstacles, including competing
stakeholder interests in real property decisions and legal and budget-
related disincentives to optimal, businesslike, real property
decisions.
Related Products:
Managing Federal Real Property:
Homeland Security: Further Actions Needed to Coordinate Federal
Agencies' Protection Efforts and Promote Key Practices. GAO-05-49.
Washington, D.C.: November 30, 2004.
Embassy Construction: Achieving Concurrent Construction Would Help
Reduce Costs and Meet Security Goals. GAO-04-952. Washington, D.C.:
September 28, 2004.
Homeland Security: Transformation Strategy Needed to Address Challenges
Facing the Federal Protective Service. GAO-04-537. Washington, D.C.:
July 14, 2004.
U.S. Postal Service: Key Elements of Comprehensive Postal Reform. GAO-
04-397T. Washington, D.C.: January 28, 2004.
Budget Issues: Agency Implementation of Capital Planning Principles Is
Mixed. GAO-04-138. Washington, D.C.: January 16, 2004.
Embassy Construction: State Department Has Implemented Management
Reforms, but Challenges Remain. GAO-04-100. Washington, D.C.: November
4, 2003.
Federal Real Property: Actions Needed to Address Long-standing and
Complex Problems. GAO-04-119T. Washington, D.C.: October 1, 2003.
National Park Service: Efforts Underway to Address Its Maintenance
Backlog. GAO-03-1177T. Washington, D.C: September 27, 2003.
Federal Real Property: Vacant and Underutilized Properties at GSA, VA,
and USPS. GAO-03-747. Washington, D.C.: August 19, 2003.
VA Health Care: Framework for Analyzing Capital Asset Realignment for
Enhanced Services Decisions. GAO-03-1103R. Washington, D.C.: August 18,
2003.
Military Base Closures: Better Planning Needed for Future Reserve
Enclaves. GAO-03-723. Washington, D.C.: June 27, 2003.
Military Housing: Opportunities That Should Be Explored to Improve
Housing and Reduce Costs for Unmarried Junior Servicemembers. GAO-03-
602. Washington, D.C.: June 10, 2003.
Federal Real Property: Executive and Legislative Actions Needed to
Address Long-standing and Complex Problems. GAO-03-839T. Washington,
D.C.: June 5, 2003.
HIGH-RISK SERIES:
Implementing and Transforming the Department of Homeland Security:
GAO Highlights:
For additional information about this high-risk area, contact Norm
Rabkin at (202) 512-8777 or rabkinn@gao.gov.
Why Area Is High Risk:
GAO designated implementing and transforming the Department of Homeland
Security (DHS) as high risk in 2003 because DHS had to transform 22
agencies--several with major management challenges--into one
department, and failure to effectively address its management
challenges and program risks could have serious consequences for our
national security. The areas GAO identified as at risk include planning
and priority setting; accountability and oversight; and a broad array
of management, programmatic, and partnering challenges.
What GAO Found:
Since its inception in March 2003, DHS leadership has provided a
foundation for maintaining critical operations while undergoing
transformation. DHS has worked to protect the homeland and secure
transportation and borders, funded emergency preparedness improvements
and emerging technologies, assisted law enforcement activities against
suspected terrorists, and issued its first strategic plan. However, in
managing its transformation, DHS must overcome a number of significant
challenges that as yet have not been adequately addressed. For example,
annual goals and time frames are vague or missing, and the capacity to
achieve them is uncertain. Performance measures and plans to monitor,
assess, and independently evaluate the effectiveness of corrective
measures are not fully developed. In addition, DHS has not completed
legislatively mandated comprehensive threat and risk assessments to set
priorities and to focus its limited resources to mitigate the greatest
risk. Moreover, given these challenges, DHS needs sustained leadership
and a commitment to a strategy that incorporates accountability and
oversight to succeed in its multiyear transformation.
DHS also must follow through on its initial actions to address its
management, programmatic, and partnering challenges. DHS's high-risk
management challenges and actions include:
* strengthening internal controls and reducing the number of material
weaknesses in its financial systems;
* fully establishing and institutionalizing a departmentwide strategic
framework for managing information; and:
* addressing systemic problems in human capital and acquisition
systems.
Concurrently, DHS is initiating corrective actions on a broad array of
programmatic challenges that require sustained effort. These challenges
include improving transportation, cargo, and border security;
systematically tracking visitors; consolidating border security
functions; updating outmoded capabilities in the Coast Guard fleet; and
balancing homeland security with other missions, such as law
enforcement and disaster planning. Also, DHS's progress in forming
effective partnerships with other governmental and private-sector
entities remains challenged in several critical areas, such as
improving critical infrastructure protection and emergency
preparedness, communication among first responders, dissemination of
timely and specific threat information, and planning for continuity of
operations in case of an adverse event.
Overall, DHS has made some progress, but significant challenges remain
to concurrently transform DHS into a more effective organization with
robust planning, management, and operations while maintaining and
improving readiness for its highly critical mission to secure the
homeland. Therefore, DHS's transformation remains high risk.
What Remains to Be Done:
Successful transformations of large organizations, even those faced
with less strenuous reorganizations and pressure for immediate results
than DHS, can take from 5 to 7 years to take hold on a sustainable
basis. For DHS to successfully address its daunting management
challenges and transform itself into a more effective organization, it
needs to (1) develop a departmentwide implementation and transformation
strategy that includes comprehensive threat and risk assessment and
strategic management principles to set goals and priorities, focus its
limited resources, and establish key milestones and accountability
provisions; (2) develop adequate performance measures and evaluation
plans; (3) provide sound and innovative human capital management; and
(4) follow through on its corrective actions to address management,
programmatic, and partnering challenges.
Related Products:
Implementing and Transforming the Department of Homeland Security:
GAO Products:
Homeland Security: Further Actions Needed to Coordinate Federal
Agencies' Facility Protection Efforts and Promote Key Practices. GAO-
05-49. Washington, D.C.: November 30, 2004.
Homeland Security: Effective Regional Coordination Can Enhance
Emergency Preparedness. GAO-04-1009. Washington, D.C.: September 15,
2004.
Department of Homeland Security: Formidable Information and Technology
Management Challenge Requires Institutional Approach. GAO-04-702.
Washington, D.C.: August 27, 2004.
Homeland Security: Transformation Strategy Needed to Address Challenges
Facing the Federal Protective Service. GAO-04-537. Washington D.C.:
July 14, 2004.
The Chief Operating Officer Concept and its Potential Use as a Strategy
to Improve Management at the Department of Homeland Security. GAO-04-
876R. Washington, D.C.: June 28, 2004.
Human Capital: DHS Faces Challenges in Implementing Its New Personnel
System. GAO-04-790. Washington, D.C.: June 18, 2004.
Transportation Security Administration: High-Level Attention Needed to
Strengthen Acquisition Function. GAO-04-544. Washington, D.C.: May 28,
2004.
Homeland Security: Summary of Challenges Faced in Targeting Oceangoing
Cargo Containers for Inspection. GAO-04-557T. Washington, D.C.: March
31, 2004.
Homeland Security: Risks Facing Key Border and Transportation Security
Program Need to Be Addressed. GAO-04-569T. Washington, D.C.: March 18,
2004.
Contract Management: Coast Guard's Deepwater Program Needs Increased
Attention to Management and Contractor Oversight. GAO-04-380.
Washington, D.C.: March 9, 2004.
Aviation Security: Challenges Exist in Stabilizing and Enhancing
Passenger and Baggage Screening Operations. GAO-04-440T. Washington,
D.C.: February 12, 2004.
DHS Products:
Major Management Challenges Facing the Department of Homeland Security.
OIG-05-06. DHS Office of the Inspector General. Washington, D.C.:
December 2004.
For more information on Department of Homeland Security major
management challenges, see http://www.gao.gov/pas/2005/dhs.htm:
HIGH-RISK SERIES:
Department of Defense Business Systems Modernization:
GAO Highlights:
For additional information about this high-risk area, contact Randolph
C. Hite at (202) 512-3439 or hiter@gao.gov.
Why Area Is High Risk:
Within the context of the Department of Defense's (DOD) business
transformation efforts, the department is spending billions of dollars
to modernize its business systems. While some aspects of its systems
modernization management have been improved, many of the underlying
conditions that contributed to past failures to improve these systems
remain fundamentally unchanged. As a result, DOD as a whole remains far
from where it needs to be to effectively and efficiently manage an
undertaking with the size, complexity, and significance of its
departmentwide business systems modernization. GAO first designated
this program as high risk in 1995; it remains so today.
What GAO Found:
DOD, one of the largest and most complex organizations in the world,
reported that it relies on over 4,000 systems to conduct its business
operations. These systems currently function in a stovepiped,
duplicative, and nonintegrated environment that contributes to the
department's operational problems. For years, DOD has attempted to
modernize these systems, and GAO has provided numerous recommendations
to help guide modernization efforts. For example, in 2001 GAO provided
DOD with a set of recommendations to help it develop and use an
enterprise architecture (modernization blueprint) and establish
effective investment management controls to guide and constrain how it
was spending billions of dollars annually on information technology
systems. GAO also made numerous project-specific and DOD-wide
recommendations aimed at getting DOD to follow proven best practices
when it acquired systems solutions. While DOD agreed with most of these
recommendations, to date the department has made uneven progress in
addressing them.
After 3 years and over $200 million in obligations, DOD still has not
developed a business enterprise architecture containing sufficient
scope and detail to guide and constrain its departmentwide systems
modernization and business transformation. One reason for this limited
progress is its failure to adopt key architecture management best
practices that GAO recommended, such as developing plans for creating
the architecture; assigning accountability and responsibility for
directing, overseeing, and approving the architecture; and defining
performance metrics for evaluating it. Furthermore, the department
still lacks an effective investment management process for selecting
and controlling ongoing and planned business systems investments. While
it has issued a policy that assigns investment management
responsibilities for business systems, it has not yet defined the
detailed procedures necessary for implementing the policy, clearly
defined the roles and responsibilities of the business domain owners,
established common investment criteria, or ensured that its business
systems are consistent with the architecture. Instead, each DOD
component continues to make its own parochial investment decisions.
Finally, DOD incorporated some, but not all, key acquisition best
practices and needed controls in its revised systems acquisition
policies and guidance. Without these controls, DOD cannot adequately
ensure that its components will appropriately follow and implement the
practices contained within the guidance. For example, GAO recently
reported that two DOD initiatives experienced operational problems,
schedule delays, and cost increases of hundreds of millions of dollars,
in part because the department failed to implement disciplined
requirements management and testing processes.
Until it implements GAO's systems modernization recommendations and
related transformation proposals, DOD will remain at risk of spending
billions of dollars on systems that do not provide needed capabilities
on time and within budget, in turn hampering its business
transformation efforts.
What Remains to Be Done:
To DOD's credit, its senior leaders are committed to improving its
systems modernization management efforts. Nevertheless, the department
continues to face key challenges. To be successful, DOD needs to follow
through on its stated commitment to implement GAO's open
recommendations aimed at employing proven systems modernization
management frameworks that are grounded in legislation, federal
guidance, and best practices. These generally fall into three key
areas: (1) develop and use an enterprise architecture, (2) institute
effective investment management practices, and (3) establish and
implement effective systems acquisition processes. GAO has also
proposed establishing a senior DOD position for all transformation
efforts, including systems modernization, and that systems funding
control be given to the business domain owners reporting to this
official.
Related Products:
Department of Defense Business Systems Modernization:
Department of Defense: Further Actions Are Needed to Effectively
Address Business Management Problems and Overcome Key Business
Transformation Challenges. GAO-05-140T. Washington, D.C.: November 17,
2004.
Information Technology: DOD's Acquisition Policies and Guidance Need to
Incorporate Additional Best Practices and Controls. GAO-04-722.
Washington, D.C.: July 30, 2004.
Department of Defense: Financial and Business Management Transformation
Hindered by Long-standing Problems. GAO-04-941T. Washington, D.C.: July
8, 2004.
DOD Business Systems Modernization: Billions Continue to Be Invested
with Inadequate Management Oversight and Accountability. GAO-04-615.
Washington, D.C.: May 28, 2004.
DOD Business Systems Modernization: Limited Progress in Development of
Business Enterprise Architecture and Oversight of Information
Technology Investments. GAO-04-731R. Washington, D.C.: May 17, 2004.
Department of Defense: Further Actions Needed to Establish and
Implement a Framework for Successful Business Transformation. GAO-04-
626T. Washington, D.C.: March 31, 2004.
Department of Defense: Further Actions Needed to Establish and
Implement a Framework for Successful Financial and Business Management
Transformation. GAO-04-551T. Washington, D.C.: March 23, 2004.
DOD Business Systems Modernization: Important Progress Made to Develop
Business Enterprise Architecture, but Much Work Remains. GAO-03-1018.
Washington, D.C.: September 19, 2003.
Business Systems Modernization: Summary of GAO's Assessment of the
Department of Defense's Initial Business Enterprise Architecture. GAO-
03-877R. Washington, D.C.: July 7, 2003.
DOD Business Systems Modernization: Long-standing Management and
Oversight Weaknesses Continue to Put Investments at Risk. GAO-03-553T.
Washington, D.C.: March 31, 2003.
Information Technology: Observations on Department of Defense's Draft
Enterprise Architecture. GAO-03-571R. Washington, D.C.: March 28, 2003.
DOD Business Systems Modernization: Continued Investment in Key
Accounting Systems Needs to Be Justified. GAO-03-465. Washington, D.C.:
March 28, 2003.
DOD Business Systems Modernization: Improvements to Enterprise
Architecture Development and Implementation Efforts Needed. GAO-03-
458. Washington, D.C.: February 28, 2003.
For more information on Department of Defense major management
challenges, see http://www.gao.gov/pas/2005/dod.htm.
High-Risk Series:
Department of Defense Approach to Business Transformation:
GAO Highlights:
For additional information about this high-risk area, contact Sharon
Pickup at (202) 512-9619 or pickups@gao.gov.
Why Area Is High Risk:
DOD has initiated various efforts to transform business operations.
However, current business processes continue to result in reduced
effectiveness and efficiencies at a time when DOD is challenged to
maintain a high level of operations while competing for resources in a
fiscally constrained environment. DOD has not yet developed a clear
strategic and integrated plan for business reform or a well-defined
blueprint--an enterprise architecture--to guide and constrain
implementation of such a plan. For these reasons, GAO is designating--
for the first time--the lack of a strategic and integrated planning
approach to DOD's business transformation as high risk. From a
departmentwide perspective, GAO has also reported on limitations in
DOD's strategic planning and budgeting, including the mismatch between
programs and budgets. GAO is aware of DOD's plans to implement a risk-
based approach to making investment decisions and resolve the mismatch
issue, and is monitoring this effort.
What GAO Found:
DOD spends billions of dollars to sustain key business operations
intended to support the warfighter, including systems and processes
related to the management of contracts, finances, the supply chain,
support infrastructure, and weapons systems acquisition. GAO has
reported on inefficiencies in DOD's business operations, such as the
lack of sustained leadership, the lack of a strategic and integrated
business transformation plan, and inadequate incentives. Moreover, the
lack of adequate transparency and accountability across DOD's major
business areas results in billions of dollars of wasted resources
annually at a time of increasing military operations and growing fiscal
constraints. The Secretary of Defense estimates that improving business
operations could save 5 percent of DOD's annual budget. Based on DOD's
reported fiscal year 2004 budget, this would represent a savings of
about $22 billion a year.
DOD has embarked on a series of efforts to reform its business
operations, including modernizing underlying information technology
(business) systems. However, serious inefficiencies remain. The areas
of business systems modernization; contract, financial, supply chain,
and support infrastructure management; and weapons systems acquisition
remain high risk. Because (1) DOD's business improvement initiatives
and control over resources is fragmented, (2) DOD lacks a clear
strategic and integrated business transformation plan and investment
strategy, and (3) DOD has not designated a senior management official
to be responsible and accountable for overall business reform and
related resources, GAO now considers DOD's approach to business
transformation to be a high-risk area.
Business transformation requires long-term cultural change and business
process reengineering and a commitment from the executive and
legislative branches of government. Sound strategic planning is the
foundation on which to build but DOD needs clear, capable, sustained,
and professional leadership to maintain the continuity necessary for
success. Such leadership would provide the attention essential for
addressing key stewardship responsibilities--such as strategic
planning, performance management, business information management, and
financial management--in an integrated manner, while helping to
facilitate transformation within DOD.
Since 1999, GAO has recommended a comprehensive, integrated strategy
and action plan for reforming DOD's major business operations and
support activities. In 2004, GAO suggested that DOD clearly establish
management accountability for business reform. While DOD is developing
an enterprise architecture for modernizing its business processes and
supporting information technology assets, it has not assigned
management responsibility or developed a comprehensive and integrated
strategy or action plan for managing its many business improvement
initiatives. Unless they are addressed in a unified and timely fashion,
DOD will continue to see billions of dollars, which could be directed
to other higher priorities, consumed to support inefficiencies in its
business functions.
What Remains to Be Done:
DOD needs to establish sustained leadership that is responsible and
accountable for overall business transformation efforts. DOD also needs
to develop and implement a strategic, integrated business
transformation plan that includes specific goals, measures, and
accountability mechanisms to monitor progress.
One option to help achieve these goals is to legislatively create a
full-time chief management officer position with long-term "good
government" responsibilities that are professional and nonpartisan in
nature.
Related Products:
Department of Defense Approach to Business Transformation:
Comptroller General of the United States. Transformation Challenges.
Presented to the Defense Intelligence Agency Board of Directors.
Arlington, Va.: December 9, 2004.
Department of Defense: Further Actions Are Needed to Effectively
Address Business Management Problems and Overcome Key Business
Transformation Challenges. GAO-05-140T. Washington, D.C.: November 17,
2004.
Department of Defense: Long-standing Problems Continue to Impede
Financial and Business Management Transformation. GAO-04-907T.
Washington, D.C.: July 7, 2004.
DOD Systems Modernization: Billions Continue to Be Invested with
Inadequate Management Oversight and Accountability. GAO-04-615.
Washington, D.C.: May 27, 2004.
DOD Business Systems Modernization: Limited Progress in Development of
Business Enterprise Architecture and Oversight of Information
Technology Investments. GAO-04-731R. Washington, D.C.: May 17, 2004.
Department of Defense: Further Actions Needed to Establish and
Implement a Framework for Successful Financial and Business Management
Transformation. GAO-04-551T. Washington, D.C.: March 23, 2004.
Comptroller General of the United States. Truth and Transparency: The
Federal Government's Financial Condition and Fiscal OutLook. Presented
before the National Press Club. Washington, D.C.: September 17, 2003.
Major Management Challenges and Program Risks: Department of Defense.
GAO-03-98. Washington, D.C.: January 1, 2003.
Defense Management: New Management Reform Program Still Evolving. GAO-
03-58. Washington, D.C.: December 12, 2002.
Defense Management: Actions Needed to Sustain Reform Initiatives and
Achieve Greater Results. GAO/NSIAD-00-72. Washington, D.C.: July 25,
2000.
Defense Reform Initiative: Organization, Status, and Challenges. GAO/
NSIAD-99-87. Washington, D.C.: April 21, 1999.
For more information on Department of Defense major management
challenges, see http://www.gao.gov/pas/2005/dod.htm.
High-Risk Series:
Establishing Appropriate and Effective Information-Sharing Mechanisms
to Improve Homeland Security:
GAO Highlights:
For additional information about this high-risk area, contact Joel
Willemssen at (202) 512-6253 or willemssenj@gao.gov or Norm Rabkin at
(202) 512-9110 or rabkinn@gao.gov.
Why Area Is High Risk:
Since September 11, 2001, multiple federal agencies have been assigned
key roles in sharing information for homeland security purposes. This
area has received increased attention but the federal government still
faces formidable challenges in gathering, identifying, analyzing, and
disseminating key information within and among federal, state, local
and private entities in an appropriate and timely manner.
Recent federal law and policy changes established requirements for
information-sharing efforts, including the development of processes and
procedures for sharing intelligence, law enforcement, immigration,
critical infrastructure, first responder, and other homeland security
related information. However, the required policies and procedures are
still being developed and need to be consistently and effectively
implemented.
What GAO Found:
The 9/11 Commission Report recognized the need to improve information
and intelligence collection, sharing, and analysis for homeland
security efforts within federal and nonfederal entities. Over the past
several years, GAO has identified potential information-sharing
barriers, critical success factors, and other key management issues to
facilitate information sharing among and between government entities
and the private sector. Effective information sharing is currently
hindered by the absence of key practices, including (1) developing
strategic plans; (2) establishing processes, procedures, and
mechanisms; and (3) appropriately implementing incentives.
Accordingly, GAO is designating this area as high risk.
Since 1998, GAO has recommended the development of comprehensive plans
for information sharing to support critical infrastructure protection
efforts. Key elements of GAO's recommendation can be applied to broader
homeland security and intelligence-sharing efforts, including clearly
delineating the roles and responsibilities of federal and nonfederal
entities, defining interim objectives and milestones, setting time
frames, and establishing performance metrics. Administration efforts
are currently under way to develop such plans.
Information sharing barriers among federal agencies include the
existence of overlapping sets of data, inconsistent agency policies for
the sharing of data, and technical incompatibilities that impede
consolidation of data. For example, in 2003 GAO found that these
challenges hindered consolidation of watch list data. In addition,
recent reports from the inspectors general at the departments of
Homeland Security and Justice highlight the challenges of integrating
and sharing information between fingerprint databases.
GAO also determined that the federal agencies had not established
processes and procedures for disseminating homeland security
information to the private sector. For example, according to industry
officials, law enforcement agencies did not provide the chemical
manufacturing industry with specific and accurate threat information in
a well-coordinated manner. Without this information, chemical companies
cannot effectively design facility security systems and protocols, and
the federal government cannot accurately assess the facilities'
vulnerability to terrorist attacks. Until information-sharing
mechanisms are instituted, federal agencies and private entities will
be constrained in their ability to effectively analyze incident,
threat, and vulnerability information to prevent terrorist attacks.
Finally, the federal government needs to more effectively consider the
use of public policy tools, such as grants, regulations, and tax
incentives, to encourage private-sector participation in sharing
homeland security information. Although the private sector has
emphasized the need for government funding to assist with its
information-sharing efforts, the government has not comprehensively
assessed potential public policy tools to encourage the private sector
to share information.
What Remains to Be Done:
While federal agencies concurred with prior GAO recommendations, action
has been limited. To address potential barriers to information sharing,
strategies should be developed to address information-sharing
challenges, including:
* establishing clear goals, objectives, and expectations for
participants in information-sharing efforts;
* consolidating, standardizing, and enhancing federal structures,
policies, and capabilities for the analysis and dissemination of
information, where appropriate; and:
* assessing the need for public policy tools to encourage private-
sector participation.
Related Products:
Establishing Appropriate and Effective Information-Sharing Mechanisms
to Improve Homeland Security:
Homeland Security: Further Actions Needed to Coordinate Federal
Agencies' Facility Protection Efforts and Promote Key Practices. GAO-
05-49. Washington, D.C.: November 30, 2004.
Information Technology: Major Federal Networks That Support Homeland
Security Functions. GAO-04-375. Washington, D.C.: September 17, 2004.
9/11 Commission Report: Reorganization, Transformation, and
Information Sharing. GAO-04-1033T. Washington, D.C.: August 3, 2004.
Critical Infrastructure Protection: Improving Information Sharing with
Infrastructure Sectors. GAO-04-780. Washington, D.C.: July 9, 2004.
Critical Infrastructure Protection: Establishing Effective Information
Sharing with Infrastructure Sectors. GAO-04-699T. Washington, D.C.:
April 21, 2004.
Homeland Security: Information-Sharing Responsibilities, Challenges,
and Key Management Issues. GAO-03-1165T. Washington, D.C.: September
17, 2003.
Homeland Security: Efforts to Improve Information Sharing Need to Be
Strengthened. GAO-03-760. Washington, D.C.: August 27, 2003.
Homeland Security: Information-Sharing Responsibilities, Challenges,
and Key Management Issues. GAO-03-715T. Washington, D.C.: May 8, 2003.
Information Technology: Terrorist Watch Lists Should Be Consolidated to
Promote Better Integration and Sharing. GAO-03-322. Washington, D.C.:
April 15, 2003.
Homeland Security: Voluntary Initiatives Are Under Way at Chemical
Facilities, but the Extent of Security Preparedness Is Unknown. GAO-03-
439. Washington, D.C.: March 14, 2003.
Critical Infrastructure Protection: Challenges for Selected Agencies
and Industry Sectors. GAO-03-233. Washington, D.C.: February 28, 2003.
Critical Infrastructure Protection: Efforts of the Financial Services
Sector to Address Cyber Threats. GAO-03-173. Washington, D.C.: January
30, 2003.
Information Sharing: Practices That Can Benefit Critical Infrastructure
Protection. GAO-02-24. Washington, D.C.: October 15, 2001.
High-Risk Series:
Department of Defense Personnel Security Clearance Program:
GAO Highlights:
For additional information about this high-risk area, contact Derek B.
Stewart at (202) 512-5559 or stewartd@gao.gov.
Why Area Is High Risk:
The Department of Defense (DOD) is responsible for issuing security
clearances for some 2 million people. These include DOD military and
civilian personnel as well as nearly 700,000 industry personnel who
work on contracts for DOD and 22 other federal agencies. Security
clearances give workers access to information that, in some cases,
could cause exceptionally grave damage if it were disclosed without
authorization.
Since fiscal year 2000, DOD has listed its personnel security
investigations program as a systemic weakness--a weakness that affects
more than one DOD component and may jeopardize the department's
operations. In October 2002, the House Committee on Government Reform
recommended that DOD's adjudicative process--decisions on clearance
eligibility--also be designated as a material weakness. This year GAO
is designating DOD's security clearance program as a high-risk area
because its delays in issuing clearances can affect national security.
What GAO Found:
As in the past, DOD continues to face sizeable security clearance
backlogs. As of September 2003 (the most recent data available), DOD
had roughly 270,000 investigative and 90,000 adjudicative cases that
had not been completed within the established time frames. The size of
its backlog of overdue, but not-yet-submitted reinvestigations was
unknown; in 2000, this part of the backlog amounted to 500,000 cases.
Such backlogs can increase the amount of time it takes to determine
clearance eligibility. In fiscal year 2003, for example, industry
personnel needed an average of 375 days to get a clearance. Such delays
increase national security risks, delay the start of classified work,
hamper employers from hiring the best qualified workers, and increase
the government's cost of national security-related contracts.
DOD's Personnel Security Clearance Process:
[See PDF for image]
[End of figure]
Several impediments have hindered DOD's ability to accurately estimate
and eliminate its clearance backlogs: (1) the large and inaccurately
forecasted number and type of new requests submitted since the
terrorist attacks of September 11, 2001; (2) insufficient investigator
and adjudicator workforces; (3) problems gaining access to state,
local, and overseas investigative information; (4) inadequate DOD
program oversight and monitoring; (5) delays in fully implementing a
new adjudication tracking system that DOD's Chief Information Officer
identified as mission critical; and (6) the lack of a comprehensive,
integrated management plan to address various obstacles. While GAO's
work focused on DOD, clearance delays in other agencies suggest that
similar impediments and their effects may extend beyond DOD.
DOD has taken positive steps toward addressing some of the impediments.
For example, DOD agencies have hired additional adjudicative staff, and
DOD is issuing interim clearances to help reduce backlogs and delays.
DOD also is consolidating two adjudication facilities and is looking at
initiatives, such as phased periodic reinvestigations for top secret
clearances, to make staff available for more productive uses. While
promising, the initiative would require a change to governmentwide
investigative standards and regulations before it could be implemented.
The National Defense Authorization Act for Fiscal Year 2004 authorized
the transfer of DOD's personnel security investigative function and
over 1,800 investigative employees to the Office of Personnel
Management (OPM). The transfer is scheduled to take place in February
2005. The transfer would eliminate DOD's responsibility for conducting
the investigations, but the change in responsibility alone will not
reduce the shortages of investigative personnel.
What Remains to Be Done:
To improve its security clearance program, DOD needs to (1) develop and
use new methods for forecasting clearance needs and monitoring
backlogs; (2) match adjudicative staffing to workloads; (3) work with
OPM to implement a comprehensive, integrated management plan for
eliminating the backlogs and delays; and (4) determine the feasibility
of implementing promising initiatives. DOD fully concurred or partially
concurred with all of GAO's recommendations.
Related Products:
Department of Defense Personnel Security Clearance Program:
Intelligence Reform: Human Capital Considerations Critical to 9/11
Commission's Proposed Reforms. GAO-04-1084T. Washington, D.C.:
September 14, 2004.
DOD Personnel Clearances: Additional Steps Can Be Taken to Reduce
Backlogs and Delays in Determining Security Clearance Eligibility for
Industry Personnel. GAO-04-632. Washington, D.C.: May 26, 2004.
DOD Personnel Clearances: Preliminary Observations Related to Backlogs
and Delays in Determining Security Clearance Eligibility for Industry
Personnel. GAO-04-202T. Washington, D.C.: May 6, 2004.
Security Clearances: FBI Has Enhanced Its Process for State and Local
Law Enforcement Officials. GAO-04-596. Washington, D.C.: April 30,
2004.
Industrial Security: DOD Cannot Provide Adequate Assurances That Its
Oversight Ensures the Protection of Classified Information. GAO-04-332.
Washington, D.C.: March 3, 2004.
DOD Personnel Clearances: DOD Needs to Overcome Impediments to
Eliminating Backlog and Determining Its Size. GAO-04-344. Washington,
D.C.: February 9, 2004.
Aviation Security: Federal Air Marshal Service Is Addressing Challenges
of Its Expanded Mission and Workforce but Additional Actions Needed.
GAO-04-242. Washington, D.C.: November 19, 2003.
For more information on Department of Defense major management
challenges, see http://www.gao.gov/pas/2005/dod.htm.
High-Risk Series:
Department of Defense Support Infrastructure Management:
GAO Highlights:
For additional information about this high-risk area, contact Barry W.
Holman at (202) 512-8412 or holmanb@gao.gov.
Why Area Is High Risk:
In 1997 GAO identified the Department of Defense's (DOD) management of
its support infrastructure as a high-risk area because DOD's
infrastructure costs continued to consume a larger-than-necessary
portion of its budget. As a result, DOD has not been able to devote
funds to more critical needs. Inefficient management practices and
outdated business processes and infrastructure have contributed to the
problem. DOD support infrastructure management remains a high-risk
area.
What GAO Found:
Although it reduced the size of its military force following the end of
the Cold War, DOD did not make similar reductions in its defense
support infrastructure, which includes categories such as force
installations, central logistics, the defense health program, and
central training. For several years, DOD has been concerned about its
excess infrastructure, which affects its ability to devote more funding
to weapon system modernization and other critical needs. DOD reported
that many of its business processes and much of its infrastructure are
outdated and must be modernized. Left alone, the current organizational
arrangements, processes, and systems will continue to drain scarce
resources. GAO's work in this area has shown that DOD continues to
spend a large portion of its budget on infrastructure--nearly 44 and 42
percent, respectively, in fiscal years 2002 and 2003.
DOD has made progress and expects to continue making improvements in
its support infrastructure management, but much work remains to be
done. DOD officials recognize that they must achieve greater
efficiencies in managing their support operations more effectively. DOD
has given high-level emphasis to reforming its support infrastructure,
including efforts in recent years to transform its associated business
processes. It has achieved some operating efficiencies and reductions
from such efforts as base realignments and closures, consolidations,
organizational and business process reengineering, privatization, and
competitive sourcing. It has also achieved efficiencies by eliminating
unneeded facilities through such means as demolishing unneeded
buildings and privatizing housing and utilities at military facilities.
In addition, DOD and the services are currently gathering and analyzing
data to support a new round of base realignments and closures in 2005
and facilitating other changes as a result of DOD's overseas basing
study. However, much work remains for DOD to rationalize and transform
its support infrastructure to improve operations, achieve efficiencies,
and allow it to concentrate its resources on the most critical needs.
DOD's plans for the 2005 Base Realignment and Closure round, with its
emphasis on eliminating excess capacity as well as enhancing joint
capabilities and searching for alternative crosscutting solutions for
common business-oriented support functions, represents an important
step toward addressing support infrastructure issues.
[See PDF for image]
Source: GAO photographs (2003).
From left to right: World War II-era wood building at Fort Bragg, North
Carolina; choked and clogged water pipes at Pope Air Force Base, North
Carolina; and outdoor portable facilities used to supplement inadequate
indoor facilities at Quantico Marine Corps Base, Virginia.
[End of figure]
What Remains to Be Done:
Organizations throughout DOD need to continue reengineering their
business processes and striving for greater operational effectiveness
and efficiency. DOD needs to develop a plan to better integrate, guide,
and sustain the implementation of its diverse business transformation
initiatives in an integrated fashion. DOD also needs to develop a
comprehensive long-range plan for its facilities infrastructure that
addresses facility requirements, recapitalization, and maintenance and
repair needs. DOD generally concurs with our prior recommendations in
this area and indicates it is taking actions to address them. A key to
any successful approach to resolving DOD's support infrastructure
management issues will be addressing this area as part of a
comprehensive, integrated business transformation.
Related Products:
Department of Defense Support Infrastructure Management:
Department of Defense: Further Actions Are Needed to Effectively
Address Business Management Problems and Overcome Key Business
Transformation Challenges. GAO-05-140T. Washington, D.C.: November 17,
2004.
Defense Infrastructure: Factors Affecting U.S. Infrastructure Costs
Overseas and the Development of Comprehensive Master Plans. GAO-04-609.
Washington, D.C.: July 15, 2004.
Military Housing: Opportunities Exist to Better Explain Family Housing
O&M Budget Requests and Increase Visibility Over Reprogramming of
Funds. GAO-04-583. Washington, D.C.: May 27, 2004.
Military Housing: Further Improvements Needed in Requirements
Determinations and Program Review. GAO-04-556. Washington, D.C.: May
19, 2004.
Military Base Closures: Assessment of DOD's 2004 Report on the Need for
a Base Realignment and Closure Round. GAO-04-760. Washington, D.C.: May
17, 2004.
Defense Infrastructure: Issues Related to the Renovation of General and
Flag Officer Quarters. GAO-04-555. Washington, D.C.: May 17, 2004.
Defense Management: Continuing Questionable Reliance on Commercial
Contracts to Demilitarize Excess Ammunition When Unused,
Environmentally Friendly Capacity Exists at Government Facilities. GAO-
04-427R. Washington, D.C.: April 2, 2004.
Military Base Closures: Observations on Preparations for the Upcoming
Base Realignment and Closure Round. GAO-04-558T. Washington, D.C.:
March 25, 2004.
Defense Infrastructure: Long-term Challenges in Managing the Military
Construction Program. GAO-04-288. Washington, D.C.: February 24, 2004.
Defense Management: Issues in Contracting for Lodging and Temporary
Office Space at MacDill Air Force Base. GAO-04-296. Washington, D.C.:
January 27, 2004.
Defense Infrastructure: Basing Uncertainties Necessitate Reevaluation
of U.S. Construction Plans in South Korea. GAO-03-643. Washington,
D.C.: July 15, 2003.
Defense Infrastructure: Changes in Funding Priorities and Management
Processes Needed to Improve Condition and Reduce Costs of Guard and
Reserve Facilities. GAO-03-516. Washington, D.C.: May 15, 2003.
For more information on Department of Defense major management
challenges, see http://www.gao.gov/pas/2005/dod.htm.
High-Risk Series:
Department of Defense Financial Management:
GAO Highlights:
For additional information about this high-risk area, contact Gregory
D. Kutz at (202) 512-9095 or kutzg@gao.gov.
Why Area Is High Risk:
Taken together, DOD's financial management deficiencies represent the
single largest obstacle to achieving an unqualified opinion on the U.S.
government's consolidated financial statements. DOD continues to face
financial management problems that are pervasive, complex, long-
standing, and deeply rooted in virtually all its business operations.
DOD's financial management deficiencies adversely affect the
department's ability to control costs, ensure basic accountability,
anticipate future costs and claims on the budget, measure performance,
maintain funds control, prevent fraud, and address pressing management
issues. GAO first designated this area as high risk in 1995; it remains
so today.
What GAO Found:
DOD's senior civilian and military leaders, committed to reforming the
department's financial management operations, have taken positive steps
to begin this effort. However, to date, tangible evidence of
improvement has been seen in a few specific areas, such as internal
controls related to DOD's purchase card program. While DOD has
established a goal of obtaining a clean opinion on its financial
statements by 2007, it lacks a clear and realistic plan to make that
goal a reality. DOD's continuing, substantial financial management
weaknesses adversely affect its ability to produce auditable financial
information as well as provide accurate and timely information for
management and the Congress to use in making informed decisions.
Examples of the Impact of Financial Management Problems at DOD:
Business area affected: Military pay;
Problem identified and its impact: Ninety-four percent of mobilized
Army National Guard and Reserve soldiers GAO investigated during
recent audits had pay problems. These problems distracted soldiers
from their missions, imposed financial hardships on their families,
and had a negative impact on retention.
Business area affected: Travel;
Problem identified and its impact: Seventy-two percent of the over
68,000 premium-class airline tickets DOD purchased for fiscal years
2001 and 2002 were not properly authorized, and 73 percent were not
properly justified. Further, control breakdowns resulted in DOD paying
millions of dollars for (1) airline tickets that were not used and not
processed for refund and (2) improper and potentially fraudulent
claims made by travelers for airline tickets they did not purchase.
Business area affected: Property;
Problem identified and its impact: DOD purchased new JSLIST chem-bio
suits for $200 apiece while they were selling on the Internet for $3.
In addition, thousands of defective suits that DOD declared as excess
were improperly issued to local law enforcement agencies, which are
likely to be the first responders in a terrorist attack.
Business area affected: Contract payments;
Problem identified and its impact: Some DOD contractors have abused
the federal tax system, including potential criminal activity, with
little or no consequence. As of September 2003, DOD had collected only
$687,000 of unpaid federal taxes through a mandated levy program. GAO
estimated that at least $100 million could be collected annually by
effectively implementing the levy on DOD contract payments.
Business area affected: Automated systems;
Problem identified and its impact: DOD invested $179 million on two
failed automated system efforts that were intended to resolve its
long-standing disbursement problems.
Source: GAO.
[End of table]
DOD is still in the very early stages of a departmentwide reform that
will take years to accomplish. DOD has not yet established a framework
to integrate improvement efforts in this area with related broad-based
DOD initiatives, such as human capital reform. Overhauling the
financial management and related business operations of one of the
largest and most complex organizations in the world represents a
daunting challenge. Such an overhaul of DOD's financial management
operations goes far beyond financial accounting to the very fiber of
the department's wide-ranging business operations and its management
culture. As discussed previously, GAO now considers DOD's current
management approach to transforming its entire business operations as a
separate overarching high-risk area.
What Remains to Be Done:
GAO has made numerous recommendations intended to improve DOD's
financial management. Essential elements of DOD's financial management
reform include (1) sustained leadership and resource control, (2) clear
lines of responsibility and accountability, (3) plans and related
results-oriented performance measures, and (4) appropriate individual
and organizational incentives and consequences. However, successful,
lasting reform in this area will only be possible if implemented as
part of a comprehensive, integrated approach to transforming all of
DOD's business operations.
Related Products:
Department of Defense Financial Management:
Comptroller General of the United States. Transformation Challenges.
Presented to the Defense Intelligence Agency Board of Directors.
Arlington, Va.: December 9, 2004.
Department of Defense: Further Actions Are Needed to Effectively
Address Business Management Problems and Overcome Key Business
Transformation Challenges. GAO-05-140T. Washington, D.C.: November 17,
2004.
Military Pay: Army Reserve Soldiers Mobilized to Active Duty
Experienced Significant Pay Problems. GAO-04-911. Washington, D.C.:
August 20, 2004.
DOD Travel Cards: Control Weaknesses Resulted in Millions of Dollars of
Improper Payments. GAO-04-576. Washington, D.C.: June 9, 2004.
DOD Business Systems Modernization: Billions Continue to Be Invested
with Inadequate Management Oversight and Accountability. GAO-04-615.
Washington, D.C.: May 27, 2004.
DOD Business Systems Modernization: Limited Progress in Development of
Business Enterprise Architecture and Oversight of Information
Technology Investments. GAO-04-731R. Washington, D.C.: May 17, 2004.
DOD Travel Cards: Control Weaknesses Led to Millions of Dollars Wasted
on Unused Airline Tickets. GAO-04-398. Washington, D.C.: March 31,
2004.
Department of Defense: Further Actions Needed to Establish and
Implement a Framework for Successful Financial and Business Management
Transformation. GAO-04-551T. Washington, D.C.: March 23, 2004.
Financial Management: Some DOD Contractors Abuse the Federal Tax System
with Little Consequence. GAO-04-95. Washington, D.C.: February 12,
2004.
DOD Excess Property: Risk Assessment Needed on Public Sales of
Equipment That Could Be Used to Make Biological Agents. GAO-04-15NI.
Washington, D.C.: November 19, 2003.
Military Pay: Army National Guard Personnel Mobilized to Active Duty
Experienced Significant Pay Problems. GAO-04-89. Washington, D.C.:
November 13, 2003.
Travel Cards: Internal Control Weaknesses at DOD Led to Improper Use of
First and Business Class Travel. GAO-04-88. Washington, D.C.: October
24, 2003.
Comptroller General of the United States. Truth and Transparency: The
Federal Government's Financial Condition and Fiscal Outlook. Presented
before the National Press Club. Washington, D.C.: September 17, 2003.
For more information on Department of Defense major management
challenges, see http://www.gao.gov/pas/2005/dod.htm:
High-Risk Series:
Department of Defense Supply Chain Management:
GAO Highlights:
For additional information about this high-risk area, contact William
M. Solis at (202) 512-8365 or solisw@gao.gov.
Why Area Is High Risk:
In 1990, GAO identified the Department of Defense's (DOD) inventory
management as a high-risk area because inventory levels were too high
and the supply system was not responsive to the needs of the
warfighters. With the onset of Operation Iraqi Freedom (OIF), other
supply chain issues related to inventory management have been reported
as impediments to supporting the warfighter. Based on our work since
January 2003, we are expanding this high-risk area to include DOD's
management of its entire supply chain, which includes distribution,
inventory management, and asset visibility.
What GAO Found:
DOD's supply chain management has experienced significant weaknesses in
its ability to provide efficient and effective supply support to the
warfighters. During OIF, the supply chain encountered many problems,
including backlogs of hundreds of pallets and containers at
distribution points, a $1.2 billion discrepancy in the amount of
material shipped to--and received by--Army activities, cannibalized
equipment because of a lack of spare parts, and millions of dollars
spent in late fees to lease or replace storage containers because of
distribution backlogs and losses. Moreover, military personnel pointed
to shortages of such items as tires, tank track, helicopter spare
parts, and radio batteries. These problems were due in part to poor
asset visibility, insufficient theater distribution capability, and a
failure to apply lessons learned from prior operations. In a March 2004
report, DOD found that, during OIF, gaps and seams were evident at
every transaction point in the end-to-end supply chain--from strategic-
level transportation to tactical-level distribution.
While DOD reports show that the department currently owns about $67
billion of inventory, shortages of certain critical spare parts are
adversely affecting equipment readiness and contributing to maintenance
delays. The Defense Logistics Agency (DLA) and each of the military
services have experienced significant shortages of critical spare
parts. In many cases, these shortages contributed directly to equipment
downtime, maintenance problems, and the services' failure to meet their
supply availability goals. DOD, DLA, and the military services each
lack strategic approaches and detailed plans that could help mitigate
these critical spare parts shortages and guide their many initiatives
aimed at improving inventory management. Despite the shortages of
parts, more than half of DOD's reported inventory--about $35 billion--
exceeded current operating requirements.
DOD also lacks visibility and control over the supplies and spare parts
it owns. Currently DOD does not have the ability to provide timely or
accurate information on the location, movement, status, or identity of
its supplies. Although Total Asset Visibility has been a departmentwide
goal for over 30 years, DOD estimates that it will not achieve this
visibility until the year 2010. DOD may not meet this goal by 2010,
however, unless it overcomes three significant impediments: developing
a comprehensive plan for achieving visibility, building the necessary
integration among its many inventory management information systems,
and correcting long-standing data accuracy and reliability problems
within existing inventory management systems.
DOD, DLA, and the services have undertaken a number of initiatives to
improve and transform DOD's supply chain. Many of these initiatives
were developed in response to the logistics problems reported during
OIF. While these initiatives represent a step in the right direction,
the lack of a comprehensive, departmentwide logistics reengineering
strategy to guide their implementation may limit their overall
effectiveness.
What Remains to Be Done:
In January 2003 and prior reports, GAO recommended that DOD reengineer
its logistics programs and apply best commercial practices to logistics
operations as a long-term solution to its inventory management
weaknesses. DOD and the services are currently attempting to transform
the supply chain to better support the warfighter, but DOD needs to
develop a plan that integrates the logistics reengineering initiatives
of the individual services and the defense agencies. This plan should
include strategies to address the weaknesses in supply chain
activities, such as distribution, inventory visibility, critical spare
parts management, inventory in excess of current operating
requirements, and the lack of integrated information management
systems. A key to any successful approach, however, will be addressing
these areas as part of a comprehensive, integrated business
transformation.
Related Products:
Department of Defense Supply Chain Management:
Defense Inventory: Improvements Needed in DOD's Implementation of Its
Long-term Strategy for Total Asset Visibility. GAO-05-15. Washington,
D.C.: December 6, 2004.
Department of Defense: Further Actions Are Needed to Effectively
Address Business Management Problems and Overcome Key Business
Transformation Challenges. GAO-05-140T. Washington, D.C.: November 17,
2004.
Defense Inventory: Navy Needs to Improve the Management over
Government-Furnished Material Shipped to Its Repair Contractors. GAO-
04-779. Washington, D.C.: August 23, 2004.
Defense Inventory: Analysis of Consumption of Inventory Exceeding
Current Operating Requirements Since September 30, 2001. GAO-04-689.
Washington, D.C.: August 2, 2004.
Foreign Military Sales: Improved Navy Controls Could Prevent
Unauthorized Shipments of Classified and Controlled Spare Parts to
Foreign Countries. GAO-04-507. Washington, D.C.: July 26, 2004.
Department of Defense: Financial and Business Management Transformation
Hindered by Long-standing Problems. GAO-04-941T. Washington, D.C.: July
8, 2004.
Department of Defense: Long-standing Problems Continue to Impede
Financial and Business Management Transformation. GAO-04-907T.
Washington, D.C.: July 7, 2004.
Defense Logistics: Preliminary Observations on the Effectiveness of
Logistics Activities during Operation Iraqi Freedom. GAO-04-305R.
Washington, D.C.: December 18, 2003.
Defense Inventory: Opportunities Exist to Improve Spare Parts Support
Aboard Deployed Navy Ships. GAO-03-887. Washington, D.C.: August 29,
2003.
Defense Inventory: Several Actions Are Needed to Further DLA's Efforts
to Mitigate Shortages of Critical Parts. GAO-03-709. Washington, D.C.:
August 1, 2003.
Defense Inventory: Navy Logistics Strategy and Initiatives Need to
Address Spare Parts Shortages. GAO-03-708. Washington, D.C.: June 27,
2003.
Defense Inventory: The Department Needs a Focused Effort to Overcome
Critical Spare Parts Shortages. GAO-03-707. Washington, D.C.: June 27,
2003.
Defense Inventory: Air Force Plans and Initiatives to Mitigate Spare
Parts Shortages Need Better Implementation. GAO-03-706. Washington,
D.C.: June 27, 2003.
For more information on Department of Defense major management
challenges, see http://www.gao.gov/pas/2005/dod.htm.
High-Risk Series:
Department of Defense Weapon Systems Acquisition:
GAO Highlights:
For additional information about this high-risk area, contact Katherine
V. Schinasi at (202) 512-4841 or schinasik@gao.gov.
Why Area Is High Risk:
Developing and acquiring high performance weapons is central to the
Department of Defense's (DOD) ability to fight and win wars. DOD's
investment in weapons is growing rapidly--from about $146 billion in
fiscal year 2004 to an estimated $185 billion by fiscal year 2009--as
it pushes to transform itself to meet a broad range of complex threats.
Weapon systems routinely take much longer to field, cost more to buy,
and require more support than provided for in investment plans. When
acquisition programs require more resources than planned, the buying
power of the defense dollar is reduced because trade-offs among other
weapons programs or defense needs must be made. Consequently, GAO has
designated this as a high-risk area since 1990, and it remains so
today.
What GAO Found:
While DOD's acquisition process has produced the best weapons in the
world, it also consistently yields undesirable consequences--cost
increases, late deliveries to the warfighter, and performance
shortfalls--in weapon system programs. Such problems were highlighted,
for example, in GAO's reviews of DOD's F/A-22 Raptor, Space-Based
Infrared System, Airborne Laser, Missile Defense, and other programs.
Problems occur because DOD's weapon programs do not capture early on
the requisite knowledge that is needed to efficiently and effectively
manage program risks. For example, programs move forward with
unrealistic program cost and schedule estimates, lack clearly defined
and stable requirements, use immature technologies in launching product
development, and fail to solidify design and manufacturing processes at
appropriate junctures in development. As a result, wants are not always
distinguished from needs, problems often surface late in the
development process, and fixes tend to be more costly than if caught
earlier. When programs require more resources than planned, the buying
power of the defense dollar is reduced, and funds are not available for
other competing needs.
While weapon system acquisitions continue to remain on GAO's high-risk
list, it should be acknowledged that DOD has undertaken a number of
acquisition reforms over the past 5 years. Specifically, DOD has
restructured its acquisition policy to incorporate attributes of a
knowledge-based acquisition model and has reemphasized the discipline
of systems engineering. In addition, DOD recently introduced new
policies to strengthen its budgeting and requirements determination
processes in order to plan and manage weapon systems based on joint
warfighting capabilities. While these policy changes are positive
steps, implementation in individual programs will continue to be a
challenge because of inherent funding, management, and cultural factors
that lead managers to develop business cases for new programs that
over-promise on cost, delivery, and performance of weapon systems. The
implementation challenge is even greater when considering DOD's move
toward bundling individual programs into "systems of systems" in order
to achieve more integrated, networked military capabilities. A key will
be addressing acquisition management as part of a comprehensive and
integrated business transformation plan.
[See PDF for image]
[End of figure]
What Remains to Be Done:
DOD needs to take additional steps to achieve outcomes on par with best
practices. These include:
* ensuring that customer needs and technical, financial, and other
resources are matched before the start of product development;
* planning product development so that design and manufacturing
decisions are based on better data; and:
* ensuring that testing does not get deferred until late in the
development cycle.
While DOD has incorporated into policy a framework that supports a
knowledge-based acquisition process similar to that used by leading
organizations, it must establish stronger controls to ensure that
decisions on individual programs are informed by demonstrated
knowledge.
Related Products:
Department of Defense Weapon Systems Acquisition:
Department of Defense: Further Actions Are Needed to Effectively
Address Business Management Problems and Overcome Key Business
Transformation Challenges. GAO-05-140T. Washington, D.C.: November 17,
2004.
Best Practices:
Defense Acquisitions: Assessments of Major Weapon Programs. GAO-04-248.
Washington, D.C.: March 31, 2004.
Defense Acquisitions: Stronger Management Practices Are Needed to
Improve DOD's Software-Intensive Weapon Acquisitions. GAO-04-393.
Washington, D.C.: March 1, 2004.
Defense Acquisitions: DOD's Revised Policy Emphasizes Best Practices,
but More Controls Are Needed. GAO-04-53. Washington, D.C.: November 10,
2003.
Defense Acquisitions: Improvements Needed in Space Systems Acquisition
Management Policy. GAO-03-1073. Washington, D.C.: September 15, 2003.
Best Practices: Setting Requirements Differently Could Reduce Weapon
Systems' Total Ownership Costs. GAO-03-57. Washington, D.C.: February
11, 2003.
Best Practices: Capturing Design and Manufacturing Knowledge Early
Improves Acquisition Outcomes. GAO-02-701. Washington, D.C.: July 15,
2002.
Weapon System Reviews:
Defense Acquisitions: Challenges Facing the DD(X) Destroyer Program.
GAO-04-973. Washington, D.C.: September 3, 2004.
Defense Acquisitions: Space-Based Radar Effort Needs Additional
Knowledge before Starting Development. GAO-04-759. Washington, D.C.:
July 19, 2004.
Uncertainties Remain Concerning the Airborne Laser's Cost and Military
Utility. GAO-04-643R. Washington, D.C.: May 17, 2004.
Missile Defense: Actions Are Needed to Enhance Testing and
Accountability. GAO-04-409. Washington, D.C.: April 23, 2004.
Defense Acquisitions: The Army's Future Combat Systems' Features,
Risks, and Alternatives. GAO-04-635T. Washington, D.C.: April 1, 2004.
Tactical Aircraft: Changing Conditions Drive Need for New F/A-22
Business Case. GAO-04-391. Washington, D.C.: March 15, 2004.
For more information on Department of Defense major management
challenges, see http://www.gao.gov/pas/2005/dod.htm.
High-Risk Series:
Department of Defense Contract Management:
GAO Highlights:
For additional information about this high-risk area, contact Katherine
V. Schinasi at (202) 512-4841 or schinasik@gao.gov.
Why Area Is High Risk:
The government's largest purchaser, the Department of Defense (DOD)
spent more than $200 billion through contracts in fiscal year 2003 to
equip and support the military forces. DOD's acquisition environment
has changed as a result of increasing reliance on contractor-provided
services, reductions in the acquisition workforce, and the introduction
or expansion of alternative contracting approaches. Further, the
improper use of purchase cards and of other agencies' contracts point
to weaknesses in DOD's control environment. In combination, these
factors have created significant management risks. We designated DOD
contract management as a high-risk area in 1992, and it remains so
today.
What GAO Found:
DOD is unable to assure that it is using sound business practices to
acquire the goods and services needed to meet the warfighter's needs.
For example, over the past decade, DOD has significantly increased its
spending on contractor-provided information technology and management
support services, but has not yet fully implemented a strategic
approach to acquiring these services. In 2002, DOD and the military
departments established a structure to review individual service
acquisitions valued at $500 million or more, and in 2003 launched a
pilot program to help identify strategic sourcing opportunities. To
further promote a strategic orientation, however, DOD needs to
establish a departmentwide concept of operations; set performance
goals, including savings targets; and ensure accountability for
achieving them. In March 2004, GAO reported that if greater management
focus were paid to opportunities to capture savings through the
purchase card program, DOD could potentially save tens of millions of
dollars without sacrificing the ability to acquire items quickly or
compromising other goals.
DOD also needs to have the right skills and capabilities in its
acquisition workforce to effectively implement best practices and
properly manage the goods and services it buys. However, DOD reduced
its civilian workforce by about 38 percent between fiscal years 1989
and 2002 without ensuring it had the specific skills and competencies
needed to accomplish current and future DOD missions, and more than
half of its current workforce will be eligible for early or regular
retirement in the next 5 years. GAO found that inadequate staffing and
the lack of clearly defined roles and responsibilities contributed to
the contract administration challenges encountered in Iraq. Further,
GAO reported that DOD's extensive use of military logistical support
contracts in Iraq and elsewhere required strengthened oversight. DOD
has made progress in laying a foundation for reshaping its acquisition
workforce by initiating a long-term strategic planning effort, but as
of June 2004 it did not yet have a comprehensive strategic workforce
plan needed to guide its efforts.
DOD uses various techniques--such as performance-based service
contracting, multiple-award task order contracts, and purchase cards--
to acquire the goods and services it needs. We have found, however,
that DOD personnel did not always make sound use of these tools. In
June 2004, for example, GAO reported that more than half of the task
orders to support Iraq reconstruction efforts it reviewed were outside
the scope of the underlying contract. In July 2004, GAO found that DOD
personnel waived competition requirements for nearly half of the task
orders reviewed. As a result of the frequent use of waivers, DOD had
fewer opportunities to obtain the potential benefits of competition--
improved levels of service, market-tested prices, and the best overall
value. We also found that DOD lacked safeguards to ensure that waivers
were granted only under appropriate circumstances.
What Remains to Be Done:
Our work has shown that DOD would benefit by:
* making use of commercial best practices, such as taking a strategic
approach to acquire services;
* building on initial efforts to develop a strategic human capital plan
for its civilian workforce; and:
* improving safeguards, issuing additional guidance, and providing
training to its workforce on the appropriate use of contracting
techniques and approaches.
DOD is undertaking corrective actions, but because most efforts are in
their early stages, it is uncertain whether they can be fully and
successfully implemented in the near term. A key to resolving DOD's
contract management issues will be addressing them as part of a
comprehensive, integrated business transformation.
Related Products:
Department of Defense Contract Management:
Comptroller General of the United States. Transformation Challenges.
Presented to the Defense Intelligence Agency Board of Directors.
Arlington, Va.: December 9, 2004.
Department of Defense: Further Actions Are Needed to Effectively
Address Business Management Problems and Overcome Key Business
Transformation Challenges. GAO-05-140T. Washington, D.C.: November 17,
2004.
Contract Management: Guidance Needed to Promote Competition for Defense
Task Orders. GAO-04-874. Washington, D.C.: July 30, 2004.
Military Operations: DOD's Extensive Use of Logistics Support Contracts
Requires Strengthened Oversight. GAO-04-854. Washington, D.C.: July
19, 2004.
DOD Civilian Personnel: Comprehensive Strategic Workforce Plans Needed.
GAO-04-753. Washington, D.C.: June 30, 2004.
Rebuilding Iraq: Fiscal Year 2003 Contract Award Procedures and
Management Challenges. GAO-04-605. Washington, D.C.: June 1, 2004.
Contract Management: Agencies Can Achieve Significant Savings on
Purchase Card Buys. GAO-04-430. Washington, D.C.: March 12, 2004.
Satellite Communications: Strategic Approach Needed for DOD's
Procurement of Commercial Satellite Bandwidth. GAO-04-206. Washington,
D.C.: December 10, 2003.
Purchase Cards: Steps Taken to Improve DOD Program Management, but
Actions Needed to Address Misuse. GAO-04-156. Washington,
D.C.: December 2, 2003.
Contract Management: High-Level Attention Needed to Transform DOD
Services Acquisition. GAO-03-935. Washington, D.C.: September 10,
2003.
DOD Contract Payments: Management Action Needed to Reduce Billions in
Adjustments to Contract Payment Records. GAO-03-727. Washington, D.C.:
August 8, 2003.
Best Practices: Improved Knowledge of DOD Service Contracts Could
Reveal Significant Savings. GAO-03-661. Washington, D.C.: June 9, 2003.
Sourcing and Acquisition: Challenges Facing the Department of Defense.
GAO-03-574T. Washington, D.C.: March 19, 2003.
Contract Management: Guidance Needed for Using Performance-Based
Service Contracting. GAO-02-1049. Washington, D.C.: September 23, 2002.
Best Practices: Taking A Strategic Approach Could Improve DOD's
Acquisition of Services. GAO-02-230. Washington, D.C.: January 18,
2002.
For more information on Department of Defense major management
challenges, see http://www.gao.gov/pas/2005/dod.htm.
High-Risk Series:
Department of Energy Contract Management:
GAO Highlights:
For additional information about this high-risk area, contact Robert A.
Robinson at (202) 512-3841 or robinsonr@gao.gov.
Why Area Is High Risk:
In 1990, we designated the Department of Energy's (DOE) contract
management as a high-risk area. DOE, the largest non-Defense
contracting agency in the federal government, relies primarily on
contractors to carry out its diverse missions and operate its
laboratories and other facilities. About 90 percent of DOE's annual
budget is spent on contracts. DOE's record of both inadequate
management and oversight of contractors and failure to hold them
accountable has resulted in the high-risk designation for contract
management. This area continues to be at high risk.
What GAO Found:
DOE's contract management, including both contract administration and
project management, continues to be at high risk for fraud, waste,
abuse, and mismanagement. In January 2003, GAO reported that DOE was
implementing new tools to strengthen its contract and project
management, but that contractor performance problems continued to occur
and objective performance information was scarce. These conditions have
not substantially changed.
Over the last 2 years, however, DOE has worked to improve its contract
and project management. For example, DOE has strengthened its contract
acquisition guidance by providing information on the relative trade-
offs between contract type and contract risk, as well as the linkage
between contract type and the work to be performed. DOE has also
implemented a formal process to ensure that contract management plans
are established for each site and each facility management contract.
DOE took steps to strengthen accountability for performance at the
contractor level by linking performance fees more directly to outcome
measures, and at the DOE manager level by linking performance
evaluations to the accomplishment of site-specific goals. DOE also
established a formal, systematic approach to designing and managing its
contract management initiative and other improvement initiatives.
While improvement efforts have been initiated, GAO found that
performance problems continue on DOE's major projects. For example, at
the start of the project to clean up radioactive waste in 177
underground storage tanks in Hanford, Washington, DOE did not implement
the project management reforms that it was incorporating into its
policy and guidance, increasing the risks DOE faces in cleaning up the
waste and potentially adding significantly to the cost of the cleanup.
At the Paducah nuclear waste cleanup site in Kentucky, DOE has had
difficulty reaching agreement with its regulators on the overall
cleanup approach, the scope of the cleanup, and the details of specific
projects. Unless DOE and the regulators can reach and maintain
agreement on key aspects of the cleanup in a timely manner, the project
could continue to be plagued by delays and cost increases. Finally, in
managing the nation's stockpile of nuclear weapons, the National
Nuclear Security Administration does not have a system for tracking the
full costs of individual refurbishments and thus does not have adequate
oversight to ensure that cost increases do not occur.
What Remains to Be Done:
To further strengthen DOE's contract and project management so that it
can demonstrate improved results from its contractors, GAO made a
series of recommendations that collectively call for DOE to improve its
management of individual projects and activities and to strengthen
senior management oversight of DOE's activities. DOE generally agreed
with the recommendations. In some cases, DOE asserted that their
ongoing efforts already addressed the recommendations; however, GAO
concluded that further improvements were needed.
Related Products:
Department of Energy Contract Management:
National Nuclear Security Administration: Key Management Structure and
Workforce Planning Issues Remain As NNSA Conducts Downsizing. GAO-04-
545. Washington, D.C.: June 25, 2004.
Nuclear Waste: Absence of Key Management Reforms on Hanford's Cleanup
Project Adds to Challenges of Achieving Cost and Schedule Goals. GAO-
04-611. Washington, D.C.: June 9, 2004.
Department of Energy: Achieving Small Business Prime Contracting Goals
Involves Both Potential Benefits and Risks. GAO-04-738T. Washington,
D.C.: May 18, 2004.
Nuclear Waste Cleanup: DOE Has Made Some Progress in Cleaning Up the
Paducah Site, but Challenges Remain. GAO-04-457. Washington, D.C.:
April 1, 2004.
Department of Energy: Mission Support Challenges Remain at Los Alamos
and Lawrence Livermore National Laboratories. GAO-04-370. Washington,
D.C.: February 27, 2004.
Nuclear Waste Cleanup: Preliminary Observations on DOE's Cleanup of the
Paducah Uranium Enrichment Plant. GAO-04-278T. Washington, D.C.:
December 6, 2003.
Nuclear Weapons: Opportunities Exist to Improve the Budgeting, Cost
Accounting, and Management Associated with the Stockpile Life Extension
Program. GAO-03-583. Washington, D.C.: July 28, 2003.
Nuclear Waste: Challenges and Savings Opportunities in DOE's High-Level
Waste Cleanup Program. GAO-03-930T. Washington, D.C.: July 17, 2003.
Contract Reform: DOE's Policies and Practices in Competing Research
Laboratory Contracts. GAO-03-932T. Washington, D.C.: July 10, 2003.
Nuclear Waste: Challenges to Achieving Potential Savings in DOE's High-
Level Waste Cleanup Program. GAO-03-593. Washington, D.C.: June 17,
2003.
Department of Energy: Status of Contract and Project Management
Reforms. GAO-03-570T. Washington, D.C.: March 20, 2003.
For more information on Department of Energy major management
challenges, see http://www.gao.gov/pas/2005/energy.htm.
High-Risk Series:
National Aeronautics and Space Administration Contract Management:
GAO Highlights:
For additional information about this high-risk area, contact Allen Li
at (202) 512-4841or lia@gao.gov.
Why Area Is High Risk:
NASA's success largely depends on the work of its contractors--on which
NASA spends about 85 percent of its annual budget. In 1990, GAO
designated NASA's contract management as high risk. This area has been
designated as high risk principally because NASA has lacked a modern
financial management system to provide accurate and reliable
information on contract spending and placed little emphasis on end
results, product performance, and cost control. These weaknesses pose
significant challenges to NASA's ability to make informed investment
decisions and implement appropriate corrective actions. Due to the
considerable challenges NASA continues to face in implementing
effective systems and processes, contract management remains high risk.
What GAO Found:
While it has taken recent actions to improve its contract management
function, NASA continues to face considerable challenges in
implementing financial management systems and processes that would
allow it to manage its contracts effectively. As GAO has reported,
NASA's failure to overcome these challenges has put a number of its
major scientific and space programs at risk. For example, our recent
review of selected NASA programs found that NASA lacked the disciplined
cost-estimating processes and financial and performance management
systems needed to establish priorities, quantify risks, and manage
program costs.
One of NASA's most formidable barriers to sound contract management is
the lack of an integrated financial management system. In 2003, GAO
reported that, in implementing its most recent system, NASA did not
reengineer its core business processes or establish adequate
requirements for the system to address many of its most significant
management challenges, including producing credible cost estimates.
Moreover, NASA opted to defer addressing the needs of key stakeholders.
In recent months, NASA has begun to take steps toward transforming how
it manages its programs and projects and oversees its contractors.
Specifically, NASA has inventoried its ongoing programs and projects--
categorized by product line, size, and risk--and defined specific
management and information requirements for each category. NASA has
also established a standardized accounting code structure based on
these information requirements that, if implemented as planned, would
allow NASA to capture the cost information that program managers and
cost estimators need to develop credible estimates and compare budgeted
and actual cost with the work performed on the contract.
However, much work remains. As GAO reported in May 2004, NASA often
does not obtain from its contractors the financial data and performance
information needed to assess progress on its contracts. In addition,
NASA lacks data analysis tools and staff trained to perform cost
analyses, including earned value management. Until NASA has the data,
tools, and analytical skills needed to alert program managers of
potential cost overruns and schedule delays and take corrective action
before they occur, it will continue to face challenges in effectively
overseeing its contractors.
Finally, NASA continues to use unnegotiated (that is, uncosted)
contract changes, a concern GAO and NASA's Office of Inspector General
have raised. Uncosted contract changes increase the government's cost
risk--the longer changes remain unnegotiated, the greater the risk.
Although GAO reported in 2003 that NASA's use of such actions had
significantly decreased, GAO recently reported its use has begun to
rise again. According to NASA officials, the increase is temporary and
needed to expedite activities to return the space shuttle fleet safely
to flight. However, continued management attention is needed to ensure
such actions are justified.
What Remains to Be Done:
GAO has recommended that NASA establish an effective architecture to
guide the Integrated Financial Management Program (IFMP), address areas
of IFMP financial reporting that do not comply with federal systems
requirements, and follow best practices and NASA's guidance in
preparing the IFMP life-cycle cost estimate. NASA agreed with these
recommendations and has taken some initial implementing actions. To
further improve contract management, NASA needs to:
* complete the design of and fully implement its integrated financial
management system;
* instill disciplined cost-estimating processes in its project
development; and:
* ensure that it obtains the information needed to assess progress on
its contracts.
Related Products:
National Aeronautics and Space Administration Contract Management:
GAO Products:
Space Shuttle: Costs for Hubble Servicing Mission and Implementation of
Safety Recommendations Not Yet Definitive. GAO-05-34. Washington, D.C.:
November 19, 2004.
NASA: Lack of Disciplined Cost-Estimating Processes Hinders Effective
Program Management. GAO-04-642. Washington, D.C.: May 28, 2004.
National Aeronautics and Space Administration: Significant Actions
Needed to Address Long-standing Financial Management Problems. GAO-04-
754T. Washington, D.C.: May 19, 2004.
NASA: Compliance with Cost Limits. GAO-04-648R. Washington, D.C.: April
2, 2004.
Business Modernization: Disciplined Processes Needed to Better Manage
NASA's Integrated Financial Management Program. GAO-04-118.
Washington, D.C.: November 21, 2003.
Business Modernization: NASA's Challenges in Managing Its Integrated
Financial Management Program. GAO-04-255. Washington, D.C.: November
21, 2003.
Business Modernization: NASA's Integrated Financial Management Program
Does Not Fully Address Agency's External Reporting Issues. GAO-04-151.
Washington, D.C.: November 21, 2003.
Information Technology: Architecture Needed to Guide NASA's Financial
Management Modernization. GAO-04-43. Washington, D.C.: November 21,
2003.
NASA: Major Management Challenges and Program Risks. GAO-03-849T.
Washington, D.C.: June 12, 2003.
Business Modernization: Improvements Needed in Management of NASA's
Integrated Financial Management Program. GAO-03-507. Washington, D.C.:
April 30, 2003.
NASA OIG Products:
Final Management Letter on Failures in Cost Estimating and Risk
Management Weaknesses in Prior Space Launch Initiative. Assignment
Numbers A-01-049-01 and A-01-049-02, IG-03-023. Washington, D.C.:
September 29, 2003.
Integrated Financial Management Program Core Financial Module
Conversion to Full Cost Accounting. IG-03-015. Washington, D.C.: May
30, 2003.
For more information on National Aeronautics and Space Administration
major management challenges, see http://www.gao.gov/pas/2005/nasa.htm.
High-Risk Series:
Management of Interagency Contracting:
GAO Highlights:
For additional information about this high-risk area, contact William
T. Woods at (202) 512-8214 or woodsw@gao.gov.
Why Area Is High Risk:
In recent years, federal agencies have been making a shift in the way
they procure many goods and services. They are making greater use of
contracts already awarded by other agencies, such as those available
through the GSA supply schedules, to save time and money in the
purchasing process. These types of contracts have seen tremendous
increases in use over the past decade, primarily because they offer
convenience and efficiency. These contracts present challenges in
ensuring adequate management controls to realize their full potential.
Our work and that of agency inspectors general have found many cases in
which agencies have not adequately met these challenges. These include
lack of compliance with federal requirements for competition, work
performed outside the scope of the contracts, and an inadequately
trained workforce.
The challenges associated with interagency contracts, recent problems
related to cases of management weaknesses, and the need to ensure that
the government is well-positioned to realize the contracts' important
value warrant designation of this as a new high-risk area.
What GAO Found:
Use of interagency contracts has increased significantly over the past
several years, with use of the GSA schedule contracts increasing nearly
tenfold since 1992, representing over $32 billion in sales in fiscal
year 2004.
Multiple Award Schedules Sales Fiscal Years 1992 through 2004:
[See PDF for image]
[End of figure]
Interagency contracts provide agencies with easy access to commonly
needed goods and services. Agencies that sponsor these contracts
usually charge a fee to support their operations. These types of
contracts have allowed agencies to meet demands for goods and services
at a time when they face growing workloads, declines in workforce, and
the need for new skill sets. However, GAO's work and the work of agency
inspectors general have found instances of improper use of interagency
contracts, including customer agencies making purchases without
ensuring that purchases are within the scope of the contract, and not
following procedures designed to promote competition. By not following
these key requirements of the contract management process, agencies
risk being out of compliance with government regulations and missing
opportunities to achieve savings and obtain better value. There are
several causes of the deficiencies GAO and others have found with the
use of interagency contracts, including the increasing demands on the
acquisition workforce, insufficient training, and, in some cases,
inadequate guidance. In addition, it is not always clear where the
responsibility lies for critical management functions in the
interagency contracting process.
Recently, the Congress and executive branch agencies have taken steps
to address these challenges, particularly in the areas of oversight and
workforce training. These are positive efforts, but some actions are
still under development and it is too early to tell whether all of the
corrective measures will be effectively implemented.
What Remains to Be Done:
Specific and targeted approaches are needed to address interagency
contracting risks. Roles and responsibilities for managing interagency
contracts need clarification, and agencies need to adopt and implement
policies and processes that balance customer service with the need to
comply with requirements.
Related Products:
Management of Interagency Contracting:
GAO Products:
Contract Management: Guidance Needed to Promote Competition for Defense
Task Orders. GAO-04-874. Washington, D.C.: July 30, 2004.
Information Technology: DOD's Acquisition Policies and Guidance Need to
Incorporate Additional Best Practices and Controls. GAO-04-722.
Washington, D.C.: July 30, 2004.
Rebuilding Iraq: Fiscal Year 2003 Contract Award Procedures and
Management Challenges. GAO-04-605. Washington, D.C.: June 1, 2004.
Federal Procurement: Spending and Workforce Trends. GAO-03-443.
Washington, D.C.: April 30, 2003.
Acquisition Workforce: Status of Agency Efforts to Address Future
Needs. GAO-03-55. Washington, D.C.: December 18, 2002.
Contract Management: Guidance Needed for Using Performance-Based
Service Contracting. GAO-02-1049. Washington, D.C.: September 23,
2002.
Contract Management: Interagency Contract Program Fees Need More
Oversight. GAO-02-734. Washington, D.C.: July 25, 2002.
Contract Management: Roles and Responsibilities of the Federal Supply
Service and Federal Technology Service. GAO-02-560T. Washington, D.C.:
April 11, 2002.
Best Practices: Taking a Strategic Approach Could Improve DOD's
Acquisition of Services. GAO-02-230. Washington, D.C.: January 18,
2002.
GSA's Guidance and Oversight Concerning Areawide Utility Contracts.
GAO-02-56R. Washington, D.C.: December 17, 2001.
Contract Management: Not Following Procedures Undermines Best Pricing
Under GSA's Schedule. GAO-01-125. Washington, D.C.: November 28, 2000.
Contract Management: Few Competing Proposals for Large DOD Information
Technology Orders. GAO/NSIAD-00-56. Washington, D.C.: March 20, 2000.
Other Related Products:
Department of Defense, Office of the Inspector General. Audit Report:
Multiple Award Contracts for Services. Report Number D-2001-189.
Arlington, Va.: 2001.
General Services Administration, Office of the Inspector General.
Compendium of Audits of the Federal Technology Services' Regional
Client Support Center. Washington, D.C.: 2004.
High-Risk Series:
Enforcement of Tax Laws:
GAO Highlights:
For additional information about this high-risk area, contact Michael
Brostek at (202) 512-9110 or brostekm@gao.gov or James White at (202)
512-9110 or whitej@gao.gov.
Why Area Is High Risk:
Internal Revenue Service (IRS) enforcement of the tax laws is vital--
not only to catch tax cheats, but also to promote broader compliance by
giving taxpayers confidence that others are paying their fair share. In
1990, we designated one aspect of enforcement, collection of tax debt,
as high risk, later broadening it to include both unpaid taxes known to
IRS and unpaid taxes IRS has not detected. In 1995, we added a new
high-risk area related to the Earned Income Credit (EIC), a refundable
tax credit available to certain low-income, working taxpayers. These
areas remain high risk and have been exacerbated by significant and
pervasive declines in IRS's enforcement activities that threaten to
erode taxpayer compliance.
What GAO Found:
The Commissioner of Internal Revenue has made strengthening enforcement
a high priority, but IRS has not yet materially reversed enforcement
declines, in large part because unbudgeted expenses and demands for
improved taxpayer service have confounded IRS's intentions. Enforcement
staffing decreased over 21 percent between 1998 and 2003, and
individual audit rates are below the levels of the mid-1990s, even
after recent increases.
IRS lacks current data on the effects of these declines on compliance.
For example, IRS's estimate of the 2001 gross tax gap--the difference
between taxes owed and taxes paid (over $300 billion)--was largely
based on extrapolations from 1988 data. Without current information on
noncompliance, IRS cannot effectively target its enforcement resources,
risks wasting resources by auditing compliant taxpayers, and is impeded
in identifying changes to laws or regulations that could reduce
noncompliance.
IRS is working to improve its enforcement efforts, partly pursuant to
our recommendations and reports. For example, IRS is carrying out
important new compliance research that GAO has encouraged for many
years. IRS has nearly completed field work for a major study of
individual taxpayers, and has plans for further studies of other groups
of taxpayers. IRS is also developing a centralized cost accounting
system, in part to obtain better cost and benefit information on
compliance activities, and is modernizing the technology that underpins
many core business processes. Further, it has redesigned some
compliance and collections processes and plans additional redesigns as
technology improves.
IRS is also continuing to address the evolving challenge of unpaid
taxes and continuing EIC noncompliance. For example:
* IRS estimates the multiyear tax losses from known and suspected tax
shelters used by corporations and individuals to be in the tens of
billions of dollars. IRS has made abusive tax shelters and schemes a
high priority, but the cost of addressing them can be high because they
tend, by design, to be complex and hard to detect.
* IRS estimated deliberate and inadvertent noncompliance with the EIC
to be between $8.5 and 9.9 billion in 1999. IRS is testing initiatives
to reduce EIC noncompliance, but at best it may be years before
compliance improves. Even as IRS addresses noncompliance, it must focus
on maintaining or improving the EIC's high participation rate.
Due to pervasive enforcement declines and the lack of current
information about noncompliance, GAO continues to regard these as high-
risk issues. In light of the Congress's decision to return to a single
enforcement appropriation in 2004, thus ending dedicated appropriations
for EIC since 1998, GAO is combining the EIC compliance and collection
of unpaid taxes areas into one high-risk area involving enforcement of
tax laws.
What Remains to Be Done:
To maintain a credible enforcement presence, and consistent with GAO's
prior recommendations, IRS must:
* continue compliance research and use the results to determine
resource needs, justify resource requests, target scarce enforcement
resources, and develop other corrective measures for all aspects of tax
law enforcement, including those related to the EIC;
* ensure that the centralized accounting system, which is to be
implemented over the next several years, is designed and used to
determine how best to allocate resources; and:
* modernize its technology and revise core business processes to
improve productivity.
Related Products:
Enforcement of Tax Laws:
Earned Income Tax Credit: Implementation of Three New Tests Proceeded
Smoothly, but Tests and Evaluation Plans Were Not Fully Documented.
GAO-05-92. Washington, D.C.: December 30, 2004.
Taxpayer Information: Data Sharing and Analysis May Enhance Tax
Compliance and Improve Immigration Eligibility Decisions. GAO-04-972T.
Washington, D.C.: July 21, 2004.
Tax Debt Collection: IRS Is Addressing Critical Success Factors for
Contracting Out but Will Need to Study the Best Use of Resources. GAO-
04-492. Washington, D.C.: May 24, 2004.
Internal Revenue Service: Assessment of Fiscal Year 2005 Budget Request
and 2004 Filing Season Performance. GAO-04-560T. Washington, D.C.:
March 30, 2004.
Financial Management: Some DOD Contractors Abuse the Federal Tax System
With Little Consequence. GAO-04-95. Washington, D.C.: February 12,
2004.
Internal Revenue Service: Challenges Remain in Combating Abusive Tax
Schemes. GAO-04-50. Washington, D.C.: November 19, 2003.
Internal Revenue Service: Challenges Remain in Combating Abusive Tax
Shelters. GAO-04-104T. Washington, D.C.: October 21, 2003.
Earned Income Credit: Qualifying Child Certification Test Appears
Justified, but Evaluation Plan Is Incomplete. GAO-03-794. Washington,
D.C.: September 30, 2003.
Federal Budget: Opportunities for Oversight and Improved Use of
Taxpayer Funds. GAO-03-1030T. Washington, D.C.: July 17, 2003.
Tax Administration: IRS Is Implementing the National Research Program
As Planned. GAO-03-614. Washington, D.C.: June 16, 2003.
IRS Modernization: Continued Progress Necessary for Improving Service
to Taxpayers and Ensuring Compliance. GAO-03-796T. Washington, D.C.:
May 20, 2003.
Compliance and Collection: Challenges for IRS in Reversing Trends and
Implementing New Initiatives. GAO-03-732T. Washington, D.C.: May 7,
2003.
Vehicle Donations: Taxpayer Considerations When Donating Vehicles to
Charities. GAO-03-608T. Washington, D.C.: April 1, 2003.
Tax Administration: Federal Payment Levy Program Measures, Performance,
and Equity Can Be Improved. GAO-03-356. Washington, D.C.: March 6,
2003.
For more information on Department of the Treasury major management
challenges, see http://www.gao.gov/pas/2005/treasury.htm.
High-Risk Series:
Internal Revenue Service Business Systems Modernization:
GAO Highlights:
For additional information about this high-risk area, contact David A.
Powner at (202) 512-9286 or pownerd@gao.gov or Steven J. Sebastian at
(202) 512-3406 or sebastians@gao.gov.
Why Area Is High Risk:
The Internal Revenue Service's (IRS) highly complex, multibillion-
dollar Business Systems Modernization (BSM) program is critical to (1)
the successful transformation of the agency's manual, paper-intensive
business operations; (2) fulfillment of its obligations under the IRS
Restructuring and Reform Act; and (3) providing the reliable and timely
financial management information needed to better enable IRS to justify
its resource allocation decisions and congressional budgetary requests.
IRS has made progress in aligning the pace of the BSM program with its
management capacity, improving its modernization management controls
and capabilities, and delivering several modernized business
applications that are producing benefits today. However, significant
challenges and serious risks remain.
What GAO Found:
IRS has long relied on obsolete automated systems for key operational
and financial management functions, and its attempts to modernize these
aging computer systems span several decades. This long history of
continuing delays and design difficulties and their impact on IRS's
operations led GAO to designate IRS's systems modernization and its
financial management as separate high-risk areas in 1995. In 2003,
GAO's high-risk report noted that IRS had made significant progress in
establishing long overdue management controls and in acquiring
foundational system infrastructure and applications. However, the BSM
program remained at risk because the scope and complexity of
modernization activities were growing, and the agency's modernization
management capacity was still maturing. Similarly, while IRS had made
notable progress in addressing several financial management
deficiencies, including deficiencies in controls over budgetary
activity and property and equipment, this area remained high risk
because IRS continued to rely on automated systems that did not provide
management current and reliable information it needed to support
informed decision making. Since resolution of IRS's most serious
remaining financial management problems largely depends upon the
success of BSM, we are combining those two issues into one BSM high-
risk area.
IRS has made further progress since 2003 in addressing GAO's concerns
about the management of BSM. IRS has (1) acted to align the pace of the
BSM program with the maturity of the agency's controls and management
capacity, including reassessing its portfolio of planned projects, (2)
deployed several modernized systems that have benefited taxpayers and
the agency and begun implementation of the initial phases of several
key automated financial management systems, and (3) made progress in
implementing GAO's recommendations to improve its modernization
management controls and capabilities. IRS has also taken corrective
actions related to aspects of financial management that are not
dependent on automated systems, such as enhancing controls over hard
copy tax receipts and data, improving the accuracy of property records,
and recording interim expense accruals.
However, BSM projects continue to incur significant cost increases and
schedule delays. IRS needs to further strengthen modernization program
management and replace its outdated financial management systems.
Balancing the scope and pace of modernization activities with the
agency's ability to manage them remains a challenge. These problems are
due, in part, to critical management controls and capabilities that IRS
has not yet fully implemented or institutionalized. IRS has developed
48 action issues related to its BSM effort and is taking action to
resolve them and to address GAO's recommendations related to BSM and
financial management. However, more remains to be done as program
management problems persist--affecting project cost, schedule, and
performance--that have plagued past systems modernization efforts and
that continue to affect IRS's ability to successfully modernize its
operational and financial management systems.
What Remains to Be Done:
IRS acknowledges its challenges and risks, and is acting to address
them. IRS needs to continue to address our numerous recommendations to
strengthen BSM and financial management by (1) balancing the scope and
pace of the program with the agency's capacity to handle the workload;
(2) fully implementing and institutionalizing essential modernization
management controls and capabilities related to configuration
management, human capital management, cost and schedule estimating, and
contract management; and (3) ensuring that the new automated systems
fully satisfy management needs for reliable, timely, and adequately
safeguarded information to support informed decision making.
Related Products:
Internal Revenue Service Business Systems Modernization:
Business Systems Modernization: IRS's Fiscal Year 2004 Expenditure
Plan. GAO-05-46. Washington, D.C.: November 17, 2004.
Financial Audit: IRS's Fiscal Years 2004 and 2003 Financial Statements.
GAO-05-103. Washington, D.C.: November 10, 2004.
Internal Revenue Service: Status of Recommendations from Financial
Audits and Related Management Reports. GAO-04-523. Washington, D.C.:
April 28, 2004.
Management Report: Improvements Needed in IRS's Internal Controls and
Accounting Procedures. GAO-04-553R. Washington, D.C.: April 26, 2004.
Business Systems Modernization: Internal Revenue Service Needs to
Further Strengthen Program Management. GAO-04-438T. Washington, D.C.:
February 12, 2004.
Financial Audit: IRS's Fiscal Years 2003 and 2002 Financial Statements.
GAO-04-126. Washington, D.C.: November 13, 2003.
Management Report: Improvements Needed in Controls over IRS's Excise
Tax Certification Process. GAO-03-687R. Washington, D.C.: July 23,
2003.
Business Systems Modernization: IRS Has Made Significant Progress in
Improving Its Management Controls, but Risks Remain. GAO-03-768.
Washington, D.C.: June 27, 2003.
Internal Revenue Service: Status of Recommendations from Financial
Audits and Related Management Reports. GAO-03-665. Washington, D.C.:
May 29, 2003.
Management Report: Improvements Needed in IRS's Internal Controls. GAO-
03-562R. Washington, D.C.: May 20, 2003.
IRS Modernization: Continued Progress Necessary for Improving Service
to Taxpayers and Ensuring Compliance. GAO-03-796T. Washington, D.C.:
May 20, 2003.
IRS Lockbox Banks: More Effective Oversight, Stronger Controls, and
Further Study of Costs and Benefits Are Needed. GAO-03-299. Washington,
D.C.: January 15, 2003.
For more information on Department of the Treasury major management
challenges, see http://www.gao.gov/pas/2005/treasury.htm.
High-Risk Series:
Modernizing Federal Disability Programs:
GAO Highlights:
For additional information about this high-risk area, contact Robert E.
Robertson (SSA programs) at 202-512-7215 or robertsonr@gao.gov or
Cynthia Bascetta (VA programs) at 202-512-7101 or bascettac@gao.gov.
Why Area Is High Risk:
In January 2003, GAO designated modernizing federal disability programs
as a high-risk area because of challenges that continue today. For
example, despite opportunities afforded by medical and technological
advances and the growing expectations that people with disabilities can
and want to work, federal disability programs remain grounded in
outmoded concepts that equate medical conditions with work incapacity.
Moreover, just as the disability programs are poised to grow rapidly as
baby boomers reach their disability-prone years, the Social Security
Administration (SSA) and the Department of Veterans Affairs (VA) face
difficult challenges in providing timely and consistent disability
decisions. Modernizing federal disability programs remains a high-risk
area as solutions are likely to require fundamental changes, including
regulatory and legislative action.
What GAO Found:
GAO's work examining federal disability programs has found that these
programs are neither well aligned with 21ST century realities nor are
they positioned to provide meaningful and timely support for Americans
with disabilities. In particular, SSA's and VA's programs are based on
concepts from the past, and both programs face ongoing challenges to
make timely, accurate, and consistent decisions. Since GAO designated
this area as high risk in 2003, SSA and VA have made some progress
toward improving their disability programs. A key initiative involves
SSA's proposal to improve the timeliness and accuracy of disability
decisions and to foster return to work at all stages of the decision-
making process. In addition, the Congress established a commission to
study the appropriateness of veterans' benefits. Moreover, SSA and VA
have both made some gains in the timeliness of their disability claims
decisions. While some actions have been initiated, SSA's and VA's
disability programs still face challenges in two key areas:
* Programs remain grounded in outmoded concepts of disability. SSA's
and VA's disability programs have not been updated to reflect the
current state of science, medicine, technology, and labor market
conditions. SSA's proposal for transforming its disability
determination process--with increased opportunities for return to work-
-could potentially lead to modernizing SSA's disability programs. But
results of SSA's previous efforts to transform its disability programs
were disappointing. Further, failure to develop a strategic workforce
plan to ensure that the appropriate mix of disability examiner skills
are available when and where needed could hamper SSA's efforts. VA
faces similar challenges in modernizing its disability programs,
including reassessing its workforce. Moreover, in light of a new
congressional commission to study the appropriateness of VA disability
benefits, VA may need to revisit its eligibility criteria.
Agencies have difficulties managing disability programs. Both SSA and
VA still experience lengthy processing times for disability claims and
lack a clear understanding of the extent of possible inconsistencies in
decisions between adjudicative levels. While SSA's proposal for
improving the accuracy and timeliness of its disability determination
process appears promising, several challenges have the potential to
hinder the strategy's success. These include dependence on a
technically complex electronic folder system that has not been fully
tested and human capital problems--such as high turnover, recruiting
difficulties, and gaps in key knowledge and skills--among disability
examiners. Moreover, while VA has made considerable progress in
improving the timeliness of its disability claims decisions, it is
still far from meeting its goal.
What Remains to Be Done:
While SSA and VA have taken some actions in response to prior GAO
recommendations, such as initiatives to improve timeliness, GAO
continues to believe that SSA and VA should take the lead in examining
the fundamental causes of program problems and seek both the management
and legislative solutions needed to transform their programs so that
they are in line with the current state of science, medicine,
technology, and labor market conditions. At the same time, these
agencies should continue to develop and implement strategies for
improving the accuracy, timeliness, and consistency of disability
decision making.
Related Products:
Modernizing Federal Disability Programs:
SSA's Disability Programs: Improvements Could Increase the Usefulness
of Electronic Data for Program Oversight. GAO-05-100R. Washington,
D.C.: December 10, 2004.
Veterans' Benefits: More Transparency Needed to Improve Oversight of
VBA's Compensation and Pension Staffing Levels. GAO-05-47. Washington,
D.C.: November 15, 2004.
Veterans Benefits: VA Needs Plan for Assessing Consistency of
Decisions. GAO-05-99. Washington, D.C.: November 19, 2004.
Social Security Disability: Improved Processes for Planning and
Conducting Demonstrations May Help SSA More Effectively Use Its
Demonstration Authority. GAO-05-19. Washington, D.C.: November 4, 2004.
TANF and SSI: Opportunities Exist to Help People with Impairments
Become More Self-Sufficient. GAO-04-878. Washington, D.C.: September
15, 2004.
Disability Insurance: SSA Should Strengthen Its Efforts to Detect and
Prevent Overpayments. GAO-04-929. Washington, D.C.: September 10, 2004.
Social Security Administration: More Effort Needed to Assess
Consistency of Disability Decisions. GAO-04-656. Washington, D.C.: July
2, 2004.
Social Security Disability: Commissioner Proposes Strategy to Improve
the Claims Process, but Faces Implementation Challenges. GAO-04-552T.
Washington, D.C.: March 29, 2004.
Electronic Disability Claims Processing: SSA Needs to Address Risks
Associated with Its Accelerated Systems Development Strategy. GAO-04-
466. Washington, D.C.: March 26, 2004.
Social Security Administration: Strategic Workforce Planning Needed to
Address Human Capital Challenges Facing the Disability Determination
Services. GAO-04-121. Washington, D.C.: January 27, 2004.
SSA Disability Decision Making: Additional Steps Needed to Ensure
Accuracy and Fairness of Decisions at the Hearings Level. GAO-04-14.
Washington, D.C.: November 12, 2003.
VA Benefits: Fundamental Changes to VA's Disability Criteria Need
Careful Consideration. GAO-03-1172T. Washington, D.C.: September 23,
2003.
Department of Veterans Affairs: Key Management Challenges in Health and
Disability Programs. GAO-03-756T. Washington, D.C.: May 8, 2003.
For more information on Social Security Administration and Department
of Veterans Affairs major management challenges, see http://
www.gao.gov/pas/2005/ssa.htm and http://www.gao.gov/pas/2005/dva.htm.
High-Risk Series:
Pension Benefit Guaranty Corporation Single-Employer Insurance
Program:
GAO Highlights:
For additional information about this high-risk area, contact Barbara
Bovbjerg at (202) 512-5491 or bovbjergb@gao.gov.
Why Area Is High Risk:
PBGC's single-employer program insures the pension benefits of over 34
million participants in more than 29,000 private defined benefit plans.
After improving during the late 1990s, the program's financial
condition has worsened from a $9.7 billion surplus in 2000 to a $23.3
billion accumulated deficit as of the end of fiscal year 2004, after a
$12.1 billion loss in fiscal year 2004. While cyclical economic
conditions have contributed to the program's financial troubles, the
program remains threatened by structural weaknesses in pension funding
rules, the program's premium structure, and the potential for large
bankruptcies among sponsors in weak industries that have underfunded
plans. GAO placed the program on its high-risk list in July 2003, and
it remains high risk.
What GAO Found:
The termination of large, underfunded defined benefit (DB) pension
plans of bankrupt firms in troubled industries has been the major cause
of the single-employer program's worsening net financial position.
While cyclical factors such as stock market and interest rate declines
have contributed to the severity of pension plans' underfunded
condition, other trends suggest serious long-term erosion of the
program's participant base. Active workers made up only 51 percent of
the program's participants in 2001, down from 78 percent in 1980. Also,
in 2002, almost half of the program's insured participants worked in
manufacturing, a sector with stagnant job growth for the last half-
century. Further, while the number of PBGC-insured plans has decreased
steadily since 1987, defined-contribution plans grew rapidly in the
1990s, indicating a decline in DB plans overall as a retirement savings
vehicle.
The rules that govern how much sponsors must contribute to their plans
may not ensure that plans maintain adequate funding to pay promised
benefits. The degree of underfunding in the private pension system has
dramatically increased, and additional severe losses may be on the
horizon. The Pension Benefit Guaranty Corporation (PBGC) estimates that
financially weak firms, particularly in the airline industry, sponsor
plans with over $35 billion in unfunded benefits.
While PBGC likely has enough assets to pay promised benefits for a
number of years, the long-term health of the single-employer program
will be threatened unless the Congress takes action soon. The possible
termination of additional large underfunded airline pension plans has
the potential to worsen the program's finances significantly,
increasing the urgency of reform. The Congress may then face a choice
of drastic reductions in pension benefits or authorizing federal
assistance.
Accumulated Surplus/Deficit and Annual Net Gain/Loss of PBGC Single-
Employer Program:
[See PDF for image]
[End of figure]
What Remains to Be Done:
Comprehensive reform will likely be needed to stabilize the long-term
finances of the single-employer program. The Congress should consider
revising current pension law to mitigate the financial risk posed by
financially troubled sponsors with underfunded plans, perhaps by
strengthening funding rules, restricting the use of credit balances and
lump-sum distributions, revising PBGC's premium structure, and
increasing plan transparency. Continued terminations that severely
worsen PBGC's finances will only increase the urgency of reform and
could ultimately lead to federal funding assistance to meet PBGC
guaranteed benefit obligations. The administration has recently
introduced a proposal that would address many of the challenges facing
PBGC, although no action has yet been taken.
Related Products:
Pension Benefit Guaranty Corporation Single-Employer Insurance
Program:
Private Pensions: Airline Plans' Underfunding Illustrates Broader
Problems with the Defined Benefit Pension System. GAO-05-108T.
Washington, D.C.: October 7, 2004.
Pension Plans: Additional Transparency and Other Actions Needed in
Connection with Proxy Voting. GAO-04-749. Washington, D.C.: August 10,
2004.
Private Pensions: Publicly Available Reports Provide Useful but Limited
Information on Plans' Financial Condition. GAO-04-395. Washington,
D.C.: March 31, 2004.
Private Pensions: Timely and Accurate Information Is Needed to Identify
and Track Frozen Defined Benefit Plans. GAO-04-200R. Washington, D.C.:
December 17, 2003.
Pension Benefit Guaranty Corporation: Single-Employer Pension
Insurance Program Faces Significant Long-Term Risks. GAO-04-90.
Washington, D.C.: October 29, 2003.
Private Pensions: Changing Funding Rules and Enhancing Incentives Can
Improve Plan Funding. GAO-04-176T. Washington, D.C.: October 29, 2003.
Pension Benefit Guaranty Corporation: Long-Term Financing Risks to
Single-Employer Insurance Program Highlight Need for Comprehensive
Reform. GAO-04-150T. Washington, D.C.: October 14, 2003.
Pension Benefit Guaranty Corporation: Single-Employer Pension
Insurance Program Faces Significant Long-Term Risks. GAO-03-873T.
Washington, D.C.: September 4, 2003.
Options to Encourage the Preservation of Pension and Retirement
Savings: Phase 2. GAO-03-990SP. Washington, D.C.: July 29, 2003.
Private Pensions: Participants Need Information on Risks They Face in
Managing Pension Assets at and during Retirement. GAO-03-810.
Washington, D.C.: July 29, 2003.
Private Pensions: Process Needed to Monitor the Mandated Interest Rate
for Pension Calculations. GAO-03-313. Washington, D.C.: February 27,
2003.
High-Risk Series:
Medicaid Program:
GAO Highlights:
For additional information about this high-risk area, contact Kathryn
G. Allen at (202) 512-7118 or allenk@gao.gov.
Why Area Is High Risk:
In 2003, GAO designated Medicaid a high-risk program in part because of
growing concerns about the quality of fiscal oversight, which is
necessary to prevent inappropriate program spending. Medicaid, the
federal-state program that covers acute health care and long-term care
services for an estimated 53 million low-income Americans, consists of
more than 50 distinct "state" programs that cost about $274 billion in
fiscal year 2003. The program accounts for more than 20 percent of
states' total expenditures and is projected to double in spending in a
decade, thus exerting continuing pressure on state budgets. The federal
government, by a formula established in law, pays from half to more
than three-fourths of each state's Medicaid expenditures. The Centers
for Medicare & Medicaid Services (CMS) in the Department of Health and
Human Services (HHS) is responsible for administering the program at
the federal level, while the states administer their respective
programs' day-to-day operations.
What GAO Found:
The program remains high risk today. Inadequate fiscal oversight has
led to increased and unnecessary federal spending in the following
ways:
Schemes that leverage federal funds inappropriately. Using statutory
and regulatory loopholes for more than a decade, some states have
created the illusion that they have made large Medicaid payments to
certain government providers, such as county health facilities, in
order to generate excessive federal matching payments. In reality, the
states only momentarily made payments to these providers--generally
through electronic funds transfers--and then required that the payments
be returned. Some of these schemes have cost the federal government
several billions of dollars each year. The Congress and CMS have acted
to curtail abusive financing schemes, but problems continue. In
response to the Congress's direction, CMS in 2001 acted to phase out
certain financing schemes, but did so in a manner that continued to
result in excessive federal matching payments. CMS has also taken steps
to improve its oversight of states' financing schemes by centralizing
its review process and conducting targeted financial management
reviews. In its fiscal year 2005 proposed budget, the administration
estimated that capping Medicaid payments to individual government
providers' actual costs--a recommendation that GAO has made to the
Congress--could save more than $9.5 billion over 5 years.
Waiver programs that inappropriately increase the federal government's
financial liability. The Secretary of HHS has authority to waive
certain statutory provisions and allow states to test new ideas for
delivering services and expanding coverage. Each waiver program must be
"budget neutral;" it should not be approved if the program would
increase federal financial liability beyond what it would have been
without the program. Since the mid-1990s, HHS has permitted states to
use questionable methods to demonstrate budget neutrality for waiver
programs estimated to increase federal costs. For example, in 2004, GAO
estimated that HHS's approval of four states' waiver requests to
provide expanded prescription drug benefits could increase federal
financial liability by over $1 billion.
Inappropriate billing by providers serving program beneficiaries.
Medicaid is vulnerable to waste, fraud, and abuse by providers who
submit inappropriate claims, resulting in substantial financial losses
to states and the federal government. In 2004, GAO reported that states
use a variety of approaches to prevent and detect improper payments,
such as on-site inspections of high-risk providers and criminal
background checks. At the federal level, CMS has activities to support
states' program integrity efforts, but its oversight of state
activities is limited. With the current commitment of CMS resources,
compliance reviews of state programs are infrequent and limited in
scope. CMS oversight may be disproportionately small relative to the
risk of serious financial loss.
What Remains to Be Done:
A GAO recommendation to the Congress to limit Medicaid payments to
government facilities to the costs of providing services remains open.
HHS has not acted on GAO recommendations to develop methods to better
ensure the budget neutrality of state waiver programs, nor has CMS
acted on recommendations to improve guidance and reporting related to
states' financing schemes.
Related Products:
Medicaid Program:
GAO Products:
Medicaid Program Integrity: State and Federal Efforts to Prevent and
Detect Improper Payments.GAO-04-707. Washington, D.C.: July16, 2004.
Medicaid Waivers: HHS Approvals of Pharmacy Plus Demonstrations
Continue to Raise Cost and Oversight Concerns. GAO-04-480. Washington,
D.C.: June 30, 2004.
Medicaid: Intergovernmental Transfers Have Facilitated State Financing
Schemes. GAO-04-574T. Washington, D.C.: March 18, 2004.
Medicaid: Improved Federal Oversight of State Financing Schemes Is
Needed. GAO-04-228. Washington, D.C.: February 13, 2004.
SCHIP: HHS Continues to Approve Waivers That Are Inconsistent with
Program Goals. GAO-04-166R. Washington, D.C.: January 5, 2004.
Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver
Projects Raise Concerns. GAO-02-817. Washington, D.C.: July 12, 2002.
Medicaid Financial Management: Better Oversight of State Claims for
Federal Reimbursement Needed. GAO-02-300. Washington, D.C.: February
28, 2002.
Medicaid: HCFA Reversed Its Position and Approved Additional State
Financing Schemes. GAO-02-147. Washington, D.C.: October 30, 2001.
Medicaid: State Financing Schemes Again Drive Up Federal Payments. GAO/
T-HEHS-00-193. Washington, D.C.: September 6, 2000.
Medicaid Section 1115 Waivers: Flexible Approach to Approving
Demonstrations Could Increase Federal Costs. HEHS-96-44. Washington,
D.C.: November 8, 1995.
Medicaid: States Use Illusory Approaches to Shift Program Costs to
Federal Government. HEHS-94-133. Washington, D.C.: August 1, 1994.
HHS OIG Products:
Testimony of George M. Reeb, Assistant Inspector General for the
Centers for Medicare and Medicaid Audits, Hearing before the House
Committee on Energy and Commerce, March 18, 2004.
For more information on Department of Health and Human Services major
management challenges, see http://www.gao.gov/pas/2005/hhs.htm.
High-Risk Series:
Medicare Program:
GAO Highlights:
For additional information about this high-risk area, contact Leslie
Aronovitz at (312) 220-7600 or aronovitzl@gao.gov.
Why Area Is High Risk:
In 1990, GAO designated Medicare a high-risk program, vulnerable to
exploitation and mismanagement, in part because of its sheer size and
complexity. The program covers about 41 million elderly and disabled
enrollees. In fiscal year 2004, Medicare's outlays were an estimated
$297 billion, and its net improper payments were about $20 billion. The
challenges for the Centers for Medicare & Medicaid Services (CMS) to
manage this program are substantial and growing, owing to new
responsibilities under the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA). Absent reform, with the drug benefit
in effect in 2006, program spending growth will be unsustainable over
time--increasing from an estimated 3.4 percent of GDP in 2006 to 7.7
percent by 2035, and to 13.8 percent by 2078. Addressing today's
management challenges can pave the way for more fundamental reforms
that could modernize the program for future generations.
What GAO Found:
MMA has created new challenges for administering the Medicare program.
These include the addition of a prescription drug benefit with an
estimated cost to the federal government of $8.1 trillion in today's
dollars to pay for the benefit over the next 75 years. CMS plans to
conduct new oversight activities for the Medicare prescription drug
benefit effective 2006 and is taking steps to improve contractors' data
analysis efforts for detecting improper payments. Findings from studies
GAO conducted in 2003 and 2004 underscore the importance of taking
these and other steps to increase Medicare's integrity, efficiency, and
effectiveness.
Oversight of patient safety and care. Lax oversight by CMS has allowed
certain patient safety weaknesses to go undetected or uncorrected. For
example, in a 2003 study of end-stage renal dialysis facilities, GAO
found that significant numbers of patients received inadequate dialysis
or anemia care. Another GAO study found that CMS's oversight of
hospital accreditation was limited. CMS has a pilot project to assess
hospital compliance efforts.
Reforming and refining payments. In the past 2 years, GAO found that
Medicare could have saved millions of dollars and reduced beneficiary
copayments by revising its payment policy for certain pathology and
other services; that payments for home health and ambulance services
may have been adequate in the aggregate but needed targeted
adjustments; and that data weaknesses hindered CMS from assessing the
adequacy of payment for hospital outpatient, hospice, and other
services.
Enhancing program integrity. CMS missed opportunities to use claims
data to target areas vulnerable to fraud and abuse. For example, in
1997, CMS was alerted to billing abuses in claims made by power
wheelchair suppliers but delayed implementing reforms for 6 years,
costing Medicare millions of dollars in overpayments. Similarly, in
1999, a Medicare contractor found high payments for services provided
by certain outpatient rehabilitation facilities in Florida relative to
similar facilities in the state, but steps the contractor took in 2001
were not sufficient to mitigate the problem. More recently, however,
CMS targeted fraudulent entities billing for home health services and
reported avoiding over $260 million in improper payments between
January 2003 and June 2004.
Improving program management. In a study GAO conducted of contractor-
run call centers charged with responding to providers' inquiries about
billing Medicare, the centers answered only 4 percent of GAO's test
calls correctly and completely. GAO found a higher, but less than
desirable, accuracy rate--61 percent--for calls placed to the 1-800-
MEDICARE help line. In a study of Medicare's claims appeals process,
GAO found that less than half of the appeals were decided within the
statutory time frame, owing to inefficiencies in contractors' case-
processing operations and incompatible data systems.
What Remains to Be Done:
Medicare will continue to be a high-risk program for the foreseeable
future. GAO has made recommendations for CMS to refine and adjust
payment systems appropriately by collecting the most accurate and
current data possible, improve detection of inappropriate billing by
conducting targeted medical record reviews of a sufficient number of
claims, and improve the efficiency of procedures and systems for
appeals and other administrative functions. CMS has agreed with some of
our recommendations but has not acted on others.
Related Products:
Medicare Program:
Medicare: Accuracy of Responses from the 1-800-MEDICARE Help Line
Should Be Improved. GAO-05-130. Washington, D.C.: December 8, 2004.
Medicare Chemotherapy Payments: New Drug and Administration Fees Are
Closer to Providers' Costs. GAO-05-142R. Washington, D.C.: December 1,
2004.
Medicare: CMS's Program Safeguards Did Not Deter Growth in Spending for
Power Wheelchairs. GAO-05-43. Washington, D.C.: November 17, 2004.
Medicare Hospice Care: Modifications to Payment Methodology May Be
Warranted. GAO-05-42 Washington, D.C.: October 15, 2004.
Medicare Physician Payments: Concerns about Spending Target System
Prompt Interest in Considering Reforms. GAO-05-85. Washington, D.C.:
October 8, 2004.
Medicare: Information Needed to Assess Adequacy of Rate-Setting
Methodology for Payments for Hospital Outpatient Services. GAO-04-772.
Washington, D.C.: September 17, 2004.
Medicare: Past Experience Can Guide Future Competitive Bidding for
Medical Equipment and Supplies. GAO-04-765. Washington, D.C.: September
7, 2004.
Comprehensive Outpatient Rehabilitation Facilities: High Medicare
Payments in Florida Raise Program Integrity Concerns. GAO-04-709.
Washington, D.C.: August 12, 2004.
Medicare: CMS Needs Additional Authority to Adequately Oversee Patient
Safety in Hospitals. GAO-04-850. Washington, D.C.: July 20, 2004.
Medicare: Call Centers Need to Improve Responses to Policy-Oriented
Questions from Providers. GAO-04-669. Washington, D.C.: July 16, 2004.
Medicare Home Health: Payments to Most Freestanding Home Health
Agencies More Than Cover Their Costs. GAO-04-359. Washington, D.C.:
February 27, 2004.
Dialysis Facilities: Problems Remain in Ensuring Compliance with
Medicare Quality Standards. GAO-04-63. Washington, D.C.: October 8,
2003.
Medicare: Modifying Payments for Certain Pathology Services Is
Warranted. GAO-03-1056. Washington, D.C.: September 30, 2003.
Medicare Appeals: Disparity between Requirements and Responsible
Agencies' Capabilities. GAO-03-841. Washington, D.C.: September 29,
2003.
Ambulance Services: Medicare Payments Can Be Better Targeted to Trips
in Less Densely Populated Rural Areas. GAO-03-986. Washington, D.C.:
September 19, 2003.
For more information on Department of Health and Human Services major
management challenges, see http://www.gao.gov/pas/2005/hhs.htm:
High-Risk Series:
HUD Single-Family Mortgage Insurance and Rental Housing Assistance
Programs:
GAO Highlights:
For additional information about this high-risk area, contact Thomas J.
McCool at (202) 512-8678 or mccoolt@gao.gov.
Why Area Is High Risk:
Under its single-family mortgage insurance programs, the Department of
Housing and Urban Development (HUD) manages over $400 billion in
insured mortgages and over 25,000 foreclosed single-family properties.
Through its rental housing assistance programs, HUD manages $56 billion
in insured mortgages and annually provides about $19 billion in rental
subsidies. To accomplish this, HUD relies on thousands of
intermediaries, including lenders, appraisers, property management
contractors, public housing agencies, and multifamily property owners.
Historically, weaknesses in HUD's oversight of these entities have made
the programs vulnerable to fraud, waste, and abuse. GAO designated HUD
as high risk in 1994. In 2001, GAO modified this high-risk area to
focus on HUD's single-family mortgage insurance and rental housing
assistance programs because significant weaknesses persisted in these
program areas. These program areas remain high risk at this time.
What GAO Found:
Since January 2003, HUD has demonstrated commitment to and progress in
addressing weaknesses identified in its high-risk program areas;
however, some of HUD's corrective actions are in the early stages of
implementation, and additional steps are needed to resolve ongoing
problems.
In the single-family mortgage insurance area, HUD has acted to reduce
the risk of financial loss by improving its oversight of lenders and
appraisers and increasing its use of foreclosure prevention tools. For
example, HUD has implemented processes to target for review lenders and
appraisers based on risk. HUD has also recently issued or proposed
numerous regulations designed to strengthen lender accountability and
combat predatory lending practices. In addition, through its loss
mitigation program, HUD reports that it has prevented insurance losses
by helping an increasing number of homebuyers avoid foreclosure.
However, HUD needs to follow through on its initiatives and use its
existing oversight tools more effectively to address continuing
weaknesses. For example, HUD continues to grant loan underwriting
authority to lenders that have not met the agency's performance
standards. Furthermore, HUD's system for rating the underwriting
quality of loans does not adequately assess the risk that the loans
pose to the agency's insurance fund. Finally, weaknesses in HUD's
process for paying single-family property management contractors have
made the agency vulnerable to millions of dollars in questionable and
potentially fraudulent payments.
In the rental assistance area, HUD has continued to implement measures
to reduce errors in rental subsidy payments and improve the physical
condition of HUD-assisted housing. HUD estimated that it made at least
$1.4 billion in erroneous rental assistance payments in fiscal year
2003. Through its Rental Housing Integrity Improvement Project, HUD is
seeking to reduce these errors through increased monitoring of public
housing agencies and multifamily property owners, better verification
of tenant incomes, and improved training and guidance for HUD staff and
program intermediaries. Estimates indicate that HUD has made progress
in reducing erroneous payments due to subsidy calculation errors
compared with fiscal year 2000. However, the extent to which project
activities are responsible for this improvement is not known, and it is
uncertain whether HUD will be able to achieve long-term reductions in
erroneous payments. In addition, a critical part of the project--the
verification of tenant incomes using state wage data--has not been
fully implemented. HUD has continued to make progress in ensuring that
HUD-assisted housing meets the agency's physical condition standards.
According to HUD, physical inspections from fiscal year 2004 showed
that about 94 percent of HUD-assisted units received satisfactory
inspection scores, an increase from the 91 percent reported for fiscal
year 2002.
What Remains to Be Done:
HUD needs to continue:
* strengthening the management and oversight of its single-family
mortgage insurance programs to reduce (1) the risk of insurance losses
and (2) vulnerability to questionable payments for property management
services; and:
* implementing its efforts to ensure that rental housing assistance
program subsidy payments are accurate and that subsidy recipients are
eligible.
Related Products:
HUD Single-Family Mortgage Insurance and Rental Housing Assistance
Programs:
Single-Family Mortgage Insurance Programs:
Single-Family Housing: Progress Made, but Opportunities Exist to
Improve HUD's Oversight of FHA Lenders. GAO-05-13. Washington, D.C.:
November 12, 2004.
Single-Family Housing: HUD's Risk-Based Oversight of Appraisers Could
Be Enhanced. GAO-05-14. Washington, D.C.: November 5, 2004.
Home Inspections: Many Buyers Benefit from Inspections, but Mandating
Their Use Is Questionable. GAO-04-462. Washington, D.C.: April 30,
2004.
HUD Single-Family and Multifamily Property Programs: Inadequate
Controls Resulted in Questionable Payments and Potential Fraud. GAO-04-
390. Washington, D.C.: March 3, 2004.
Single-Family Housing: Cost, Benefit, and Compliance Issues Raise
Questions about HUD's Discount Sales Program. GAO-04-208. Washington,
D.C.: January 30, 2004.
Rental Housing Assistance Programs:
Multifamily Housing: More Accessible HUD Data Could Help Efforts to
Preserve Housing for Low-Income Tenants. GAO-04-20. Washington, D.C.:
January 23, 2004:
Public Housing: HOPE VI Resident Issues and Changes in Neighborhoods
Surrounding Grant Sites. GAO-04-109. Washington, D.C.: November 21,
2003.
Elderly Housing: Project Funding and Other Factors Delay Assistance to
Needy Households. GAO-03-512. Washington, D.C.: May 30, 2003.
Public Housing: HUD's Oversight of HOPE VI Sites Needs to Be More
Consistent. GAO-03-555. Washington, D.C.: May 30, 2003.
Public Housing: Information on Receiverships at Public Housing
Authorities. GAO-03-363. Washington, D.C.: February 14, 2003.
For more information on Department of Housing and Urban Development
major management challenges, see http://www.gao.gov/pas/2005/hud.htm:
High-Risk Series:
Federal Aviation Administration Air Traffic Control Modernization:
GAO Highlights:
For additional information about this high-risk area, contact David
Powner, (202) 512-9286 or Pownerd@gao.gov.
Why Area Is High Risk:
After almost 25 years and $41 billion, the Federal Aviation
Administration's (FAA) air traffic control modernization program is far
from complete. While FAA has made important progress in addressing
weaknesses that GAO identified, more remains to be done. In the
meantime, major FAA air traffic control projects continue to face
challenges in meeting cost, schedule, and/or performance expectations.
Key projects include systems to augment the global positioning system
to aid in approaches and landings, improved radar systems for terminal
environments, and systems to provide new color displays and data
processing to air traffic controllers. GAO initially designated FAA's
modernization program as high risk in 1995, and it remains high risk
today.
What GAO Found:
Faced with growing air traffic and aging equipment, in 1981, FAA
initiated an ambitious effort to modernize its air traffic control
system. This modernization involves the acquisition of new equipment
for surveillance, data processing, navigation, and communications, in
addition to new facilities, and is expected to cost $48.6 billion
through the year 2007. Over the past 2 decades, many of the projects
that make up the modernization program have experienced cost overruns,
schedule delays, and performance shortfalls. GAO's work over the years
has identified root causes of the modernization program's problems,
including (1) immature capabilities for acquiring software-intensive
systems, (2) lack of a complete and enforced system architecture (or
blueprint), (3) inadequate cost estimating and cost accounting
practices, (4) an ineffective process for managing investments in
information technology (IT), and (5) an organizational culture that
impaired the acquisition process.
FAA has made important progress in addressing these weaknesses, but
more remains to be done. For example, FAA has:
* improved key processes for acquiring and developing software and
systems. The agency established a framework for improving its system
management processes, and selected FAA projects are performing many of
the desired practices. Nevertheless, the agency has not yet
institutionalized these process improvements.
* continued to develop an enterprise architecture--a blueprint of the
agency's current and target operations and infrastructure. However,
this architecture is still not complete and compliance is not yet
enforced. We have ongoing work evaluating what the agency needs to do
to develop and enforce its enterprise architecture.
* improved cost accounting and estimating practices. The agency
established sound cost estimating practices and implemented key
components of a cost accounting system. However, the system is not yet
fully operational or used to improve future estimates.
* established basic investment management capabilities, including many
practices for selecting and controlling its mission-critical IT
investments. However, FAA's senior IT investment board does not
regularly review investments in the operational phase of their life
cycles, and this inhibits FAA's ability to oversee more than $1 billion
of its IT investments.
* sought to establish an organizational culture that supports sound
acquisitions. However, the agency still faces many human capital
challenges. Specifically, it does not effectively ensure that air
traffic controllers, technical experts, and stakeholders are involved
as new systems are developed, deployed, and refined.
Until the agency addresses these residual issues, it will continue to
risk the project management problems affecting cost, schedule, and
performance that have hampered its ability to acquire systems for
improving air traffic control.
What Remains to Be Done:
GAO has made over 40 specific recommendations to address root causes of
FAA's modernization challenges. The agency has made progress on these
recommendations, but more must be done to institutionalize system
management process improvement initiatives, develop and enforce an
enterprise architecture, implement effective investment management
processes, and improve human capital management.
With FAA expecting to spend about $7.6 billion between now and fiscal
year 2007 on new air traffic control systems, these actions are as
critical as ever.
Related Products:
Federal Aviation Administration Air Traffic Control Modernization:
Air Traffic Control: FAA Needs to Ensure Better Coordination When
Approving Air Traffic Control Systems. GAO-05-11. Washington, D.C.:
November 17, 2004.
Air Traffic Control: FAA's Acquisition Management Has Improved, but
Policies and Oversight Need Strengthening to Help Ensure Results. GAO-
05-23. Washington, D.C.: November 10, 2004.
Air Traffic Control: System Management Capabilities Improved, but More
Can Be Done to Institutionalize Improvements. GAO-04-901. Washington,
D.C.: August 20, 2004.
Information Technology: FAA Has Many Investment Management Capabilities
in Place, but More Oversight of Operational Systems is Needed. GAO-04-
822. Washington, D.C.: August 20, 2004.
Federal Aviation Administration: Plan Still Needed to Meet Challenges
to Effectively Managing Air Traffic Controller Workforce. GAO-04-887T.
Washington, D.C.: June 15, 2004.
Federal Aviation Administration: Challenges for Transforming into a
High-Performing Organization. GAO-04-770T. Washington, D.C.: May 18,
2004.
Air Traffic Control: FAA's Modernization Efforts--Past, Present, and
Future. GAO-04-227T. Washington, D.C.: October 30, 2003.
National Airspace System: Current Efforts and Proposed Changes to
Improve Performance of FAA's Air Traffic Control System. GAO-03-542.
Washington, D.C.: May 30, 2003.
Federal Aviation Administration: Reauthorization Provides
Opportunities to Address Key Agency Challenges. GAO-03-653T.
Washington, D.C.: April 10, 2003.
National Airspace System: Reauthorizing FAA Provides Opportunities and
Options to Address Challenges. GAO-03-473T. Washington, D.C.: February
12, 2003.
National Airspace System: Better Cost Data Could Improve FAA's
Management of the Standard Terminal Automation Replacement System. GAO-
03-343. Washington, D.C.: January 31, 2003.
For more information on Department of Transportation major management
challenges, see http://www.gao.gov/pas/2005/dot.htm.
(450363):
FOOTNOTES
[1] GAO, High-Risk Series: An Update, GAO-03-119 (Washington, D.C.:
January 2003).
[2] GAO, Determining Performance and Accountability Challenges and High
Risks, GAO-01-159SP (Washington, D.C.: November 2000).
[3] A material weakness is a condition in which the design or operation
of one or more of the internal control components does not reduce to a
relatively low level the risk that errors, fraud, or noncompliance in
amounts that would be material to the financial statements may occur
and not be detected promptly by employees in the normal course of
performing their duties.
[4] The Homeland Security Act of 2002 (P.L. 107-296); the Intelligence
Reform and Terrorism Prevention Act of 2004 (P.L. 108-458).
[5] Executive Order 13311: Homeland Security Information Sharing
(Washington, D.C.: July 29, 2003).
[6] National Strategy for Homeland Security, July 2002; National
Strategy to Secure Cyberspace, February 2003; and National Strategy for
the Physical Protection of Critical Infrastructures and Key Assets,
February 2003.
[7] Homeland Security Presidential Directive 6, Integration and Use of
Screening Information (Washington, D.C.: Sept. 16, 2003).
[8] Homeland Security Presidential Directive 7, Critical Infrastructure
Identification, Prioritization, and Protection (Washington, D.C.: Dec.
17, 2003).
[9] Executive Order 13356, Strengthening the Sharing of Terrorism
Information to Protect Americans (Washington, D.C.: Aug. 27, 2004).
[10] Executive Order 13354, National Counterterrorism Center
(Washington, D.C.: Aug. 27, 2004).
[11] National Commission on Terrorist Attacks, The 9/11 Commission
Report: Final Report of the National Commission on Terrorist Attacks
upon the United States (Washington, D.C.: Government Printing Office,
July 22, 2004).
[12] GAO, Critical Infrastructure Protection: Improving Information
Sharing with Infrastructure Sectors, GAO-04-780 (Washington, D.C.: July
9, 2004).
[13] U.S. Department of Homeland Security, Office of Inspector General,
Major Management Challenges Facing the Department of Homeland Security,
OIG-05-06 (Washington D.C.: December 2004); and U.S. Department of
Justice, Office of Inspector General, Semiannual Report to the
Congress: Top Management Challenges (Washington, D.C.: Nov. 22, 2003).
[14] GAO, Homeland Security: Information Sharing Responsibilities,
Challenges, and Key Management Issues, GAO-03-1165T (Washington, D.C.:
Sept. 17, 2003); and Homeland Security: Information-Sharing
Responsibilities, Challenges, and Key Management Issues, GAO-03-715T
(Washington, D.C.: May 8, 2003).
[15] GAO, Rebuilding Iraq: Fiscal Year 2003 Contract Award Procedures
and Management Challenges, GAO-04-605 (Washington, D.C.: June 1, 2004).
[16] U.S. Department of the Interior, Office of the Inspector General,
Review of 12 Procurements Placed Under General Services Administration
Federal Supply Schedules 70 and 871 by the National Business Center
(Washington, D.C.: 2004).
[17] U.S. General Services Administration, Office of the Inspector
General, Compendium of Audits of the Federal Technology Service's
Regional Client Support Centers (Washington, D.C.: 2004).
[18] GAO, Contract Management: Guidance Needed to Promote Competition
for Defense Task Orders, GAO-04-874 (Washington, D.C.: July 30, 2004).
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